Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.

Bottom line

Insolvencies rose in November, after two consecutive monthly declines, on a seasonally-adjusted basis. This suggests that insolvencies could be restarting their rising trend seen since the spring of 2022. The sharp rise in interest rates in 2022 and the continued erosion in households’ purchasing power over the period and is likely causing strain on households’ finances. However, the continued strength in the labour market and households using their savings have helped mitigate some of the financial stress so far. 

Despite the increase in November, the number of insolvencies remains below the level reached in August, on a seasonally-adjusted basis, and well below their pre-pandemic levels. However, proposals (a renegotiation of terms) have increased sharply over the past year. As a result, they are now above their pre-pandemic level nationally and in BC, Alberta, Saskatchewan, and Manitoba. This situation suggests a rise in households struggling with their debt load.

Record levels of household debt, declining purchasing power due to rising inflation, and the sharp rise in interest rates are putting pressure on households’ finances (see The Great Consumer Squeeze for details). Moreover, a slowing economy is likely to be associated with a rise in unemployment. All those factors point to a rise in insolvencies in the coming months. The question is whether the strength of the labour market, with the a very low unemployment rate, and the vast amount of saving accumulated during the pandemic, estimated at $320bn, will continue to provide some relief.

In Alberta, a strong recovery in the oil sector, with the value of oil production reaching an all-time high since mid-2021 (production value has averaged $12bn since the start of 2022), and the associated tailwind to the economy, and a robust labour market could help to hold back insolvencies. However, Albertan households have some of the highest debt-to-income ratios, making them vulnerable to rising interest rates. In addition, we note that the level of proposals (a renegotiation of terms) is well above its pre-pandemic one.

Insolvencies rose 4.7% m-o-m in November on a seasonally-adjusted basis, after two consecutive months of decline. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 17.5% compared to the same month last year. This resulted from a 28.2% y-o-y increase in proposals, while bankruptcies were lower by 6.8% y-o-y. Compared to last year, insolvencies increased in every province, except in PEI and Newfoundland, where there declined by 25% y-o-y and 4.7% y-o-y, respectively. The increase was the most significant in BC (+32.5% y-o-y), Nova Scotia (+27.4% y-o-y), Ontario (+23.9% y-o-y), and New Brunswick (+15.6% y-o-y). Manitoba (+2.9% y-o-y), Alberta (+8.5% y-o-y), Quebec (+13% y-o-y), and Saskatchewan (+15.0% y-o-y) saw the smallest, yet still large in most cases, increases. We note that the data for the Atlantic provinces are likely affected by the aftermath of hurricane Fiona, distorting both the y-o-y and m-o-m changes.

On a monthly basis, insolvencies rose by 4.7% m-o-m seasonally-adjusted (sa) in November. The higher insolvencies were led by an increase in both proposals (+4.4% m-o-m sa) and in bankruptcies (+3.5% m-o-m sa). The increase in insolvencies on the month was led by Nova Scotia (11.4% m-o-m sa), Ontario (+9.6% m-o-m sa), Alberta (+7.8% m-o-m sa), and Quebec (+4.6% m-o-m). Insolvencies declined on the month in Newfoundland (-27.0% m-o-m sa), PEI (-18.7% m-o-m sa) and New Brunswick (-5.1% m-o-m sa).

In Alberta, insolvencies increased by 7.8% m-o-m sa and rose by 8.5% compared to the same month last year. Over the past 12 months, there have been 15.0k insolvencies, still well below their pre-pandemic levels of 17.2k. On a seasonally-adjusted basis, the increase in insolvencies in November came from a reduction in both proposals (+5.0% m-o-m sa) and bankruptcies (+11.1% m-o-m sa.). However, we note that the level of proposals is currently almost 20% above its pre-pandemic level.

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.

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