Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Insolvencies surged 10.0% m-o-m on a seasonally-adjusted basis (SA) in April, following some easing since January. While the data has been quite volatile over the past year, even on a seasonally-adjusted basis, The rise in insolvencies was driven by both an increase in consumer and business insolvencies. The question is whether April is the start of a new trend as the elevated uncertainty takes a toll on the economy and the labour market.
The consumer insolvency rate (insolvencies per 1,000 population) edged higher in April, but remains marginally lower than it was on the eve of the pandemic. (see Fig 6). However, the level of proposals (ie renegotiation of terms) is above pre-COVID levels in all provinces, while bankruptcy levels remain well below. We also note that the total levels of insolvencies in BC, Manitoba, Saskatchewan, Alberta, and Ontario are above the levels seen in 2019; all these provinces have higher-than-average levels of debt-to-disposable income (see Fig. 7). Similarly, these provinces have seen the biggest rise in insolvency rate compared to pre-Covid.
Business insolvencies rose in April on a seasonally-adjusted, and are at levels last seen in 2009 (see Fig 8). We also note that the increase in business bankruptcies seen in April could be putting an end to the declining trend that was seen since the surge in January 2024, following the CEBA loan repayment deadline (Fig 9).
Record levels of household debt, declining purchasing power due to the recent inflationary episode, and high interest rates have put a lot of pressure on households’ finances in recent years. There were some improvements in insolvencies in recent months, likely due declining interest rates in second half of 2024. The labour market’s resilience has played a crucial role in recent years, allowing borrowers to weather these shocks by adjusting their lending to mitigate the impact of higher interest rates on their regular payments.
However, with the Canadian economy slowing due to the impact of the US tariffs and the extreme uncertainty, it is likely the situation could deteriorate in the coming months. Job losses are a major risk, further squeezing consumers, and the recent poor performance of the labour market is of concern. As we have pointed to at numerous occasions, a deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies and could have some significantly negative consequences on the economy (see It’s a “Me-cession”, not a recession and Will it be a hard landing or a soft landing? The labour market will decide).
In Alberta, insolvencies increase in April and the consumer insolvency rate remains above the national average. Albertan households have some of the highest debt-to-income ratios, making them vulnerable to rising interest rates and income losses. They have also seen a bigger decline in their purchasing power than other provinces due to underperforming wages and income gains. This makes Albertans particularly vulnerable to job losses.
Insolvencies increased 10.0% m-o-m in April on a seasonally-adjusted basis, following a 5.7% m-o-m decrease in March. Insolvencies have been quite volatile over the past, even on a seasonally-adjusted basis. Nevertheless, insolvencies had been on an easing trend since January. Nevertheless, insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), are 1.8% higher compared to the same month last year. This resulted from a 2.5% y-o-y decline in proposals while bankruptcies were marginally higher by 0.2% y-o-y. It’s important to note that proposals represent about 76% of total insolvencies.
Compared to last year, insolvencies are mixed across provinces. Insolvencies increased the most in Newfoundland (+16.6% y-o-y), PEI (+8.7% y-o-y), BC (+4.7% y-o-y), and Manitoba (+4.4% y-o-y). They eased the most in Ontario (-5.2% y-o-y), Alberta (-3.8% y-o-y), Saskatchewan (-1.5% y-o-y), and Quebec (-0.9% y-o-y).
On a monthly basis, insolvencies surged by 10.0% m-o-m seasonally-adjusted (sa) in April. The details show an increase in both bankruptcies (+11.5% m-o-m) and proposals (+9.2% m-o-m). At the provincial level, insolvencies rose in most provinces, except in Newfoundland (-2.5% m-o-m). They increased the most in Quebec (+13.1% m-o-m), Ontario (+11.3% m-o-m), Saskatchewan (+11.3% m-o-m), and BC (+4.8% m-o-m).
Relative to 2019, insolvencies in Canada are currently 1.7% higher, with proposals being 30% above their 2019 levels, while bankruptcies are 40% below. We note that the level of insolvencies is higher compared to pre-COVID in BC (+31%), Manitoba (+23%), Ontario (+14%), Alberta (+10%), and Saskatchewan (+8.3%).
The level of insolvencies is still well below pre-pandemic in Nova Scotia (-29%), New Brunswick (-28%), Newfoundland (-26%), PEI (-23%), and Quebec (-14%).
We note that the level of proposals is well above its pre-pandemic level in all provinces, led by Manitoba (+72%), BC (+71%), Alberta (+45%), Saskatchewan (+42%), and Ontario (+35%).
The consumer insolvency rate (number of insolvencies per 1000 people aged 15 and over) rose to 0.333 in March from 0.305. The insolvency rate is the highest in Newfoundland (0.423), New Brunswick (0.396), Nova Scotia (0.393), and Alberta (0.379). It is the lowest in BC (0.247), Manitoba (0.268), Ontario (0.292), and Saskatchewan (0.313).
Compared to 2019, the insolvency rate is 0.040 lower nationally. It is higher than in 2019 only in BC (+0.031) and Manitoba (+0.026). It has eased the most in Nova Scotia (-0.232), New Brunswick (-0.230), Newfoundland (-0.175) and PEI (-0.168).
Business insolvencies jumper higher by 18.6% m-o-m seasonally-adjusted in April and are still significantly lower than last year (-15.1% y-o-y). The decrease in business insolvencies over the past year, representing less than 5% of total insolvencies, is due to a decline in bankruptcies (-13.7% y-o-y), and in proposals (-20.2% y-o-y). Bankruptcies represent about 76% of business insolvencies.
The increase in business insolvencies on monthly basis at the national level, was mainly the result of higher insolvencies in Ontario (+40.0% m-o-m) and Quebec (+14.2% m-o-m), while the decline on a y-o-y basis was mainly due to lower insolvencies in Quebec (-25.8% y-o-y).
By industrial sectors, the detail shows lower insolvencies for administrative and support services, transport and warehousing, professional, technical and scientific services, and accommodation and food services. These declines were partly offset by increasing insolvencies in the manufacturing sector.
Compared to pre-pandemic levels, business insolvencies in Canada are 49% higher, with BC (+164%), Ontario (+95%), Alberta (+64%), Quebec (+30%) having seen the biggest increases.
In Alberta, insolvencies rose by 1.3% m-o-m sa. in April and were 3.8% lower compared to the same month last year. Over the past 12 months, there have been 19.4k insolvencies. On a seasonally-adjusted basis, the higher insolvencies in April came from an increase in proposals (+3.0% m-o-m sa) and bankruptcies (+0.9% m-o-m sa). We note that the level of proposals is currently about 45% above its pre-pandemic level, while bankruptcies are 52% below pre-COVID. On the consumer side, the insolvency rate rose to 0.381 from 0.373, slightly lower than pre-pandemic. On the business side, insolvencies are 4.0% higher than in April of last year, with a 63% y-o-y increase in proposals and 24% y-o-y in bankruptcies.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.