Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
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Insolvencies jumped by 8.4% m-o-m on a seasonally-adjusted basis (SA) in October, following a decline in September. We note that the data has been quite volatile since the beginning of the year, even on a seasonally-adjusted basis.
The consumer insolvency rate (insolvencies per 1000 population) rose slightly in October and remained close to its highest level since January 2020. Still, the insolvency rate is roughly in line with the levels prevailing pre-pandemic (see Fig 6). We note that bankruptcies remain well below their pre-pandemic level in all provinces, as insolvencies continue to be driven by proposals (renegotiation of terms).
We note that the total levels of insolvencies in BC, Manitoba, Saskatchewan, Alberta and Ontario are well above the levels seen in 2019; all those 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 eased in October on a seasonally-adjusted basis and are lower than for the same month last year. Business insolvencies remain below levels seen pre-2009 (see Fig 8). We also note that there has also been some stabilization in business bankruptcies in recent months (Fig 9). It will be interesting to see if this new trend continues over the coming months.
Record levels of household debt, declining purchasing power due to the recent inflationary episode, and higher interest rates are putting pressure on households’ finances. So far, the labour market’s resilience has meant that borrowers have been able to weather the shock by allowing them to readjust their lending to reduce the shock from higher interest rates on their regular payments. However, job losses would be a major risk, further squeezing consumers. Moreover, despite the recent rate cuts, interest rates remain well above the level seen in recent years, meaning that many homeowners have to renew their mortgages at higher rates over the next few years. All those factors point to further rises in insolvencies. The question is whether the labour market will continue to provide some relief with its low albeit increasing unemployment rate and the vast amount of savings accumulated during the pandemic. A deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies (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 continue to trend higher and the consumer insolvency rate is the highest amongst provinces. 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. In addition, we note that the insolvency level has been at or close to record highs most of 2024 and proposals (a renegotiation of terms) are well above their pre-pandemic level. On the business side, we note that insolvencies have eased in recent months.
Insolvencies jumped 8.4% m-o-m in October on a seasonally-adjusted basis, after being relatively stable in recent months. Insolvencies have been quite volatile so far this year, even on a seasonally-adjusted basis. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 13.9% compared to the same month last year. This resulted from a 13.7% y-o-y rise in proposals and a 14.6% y-o-y increase in bankruptcies. It’s important to note that proposals represent about 77% of total insolvencies.
Compared to last year, insolvencies are higher in all provinces. Insolvencies increased the most in PEI (+61.8% y-o-y), Ontario (24.6% y-o-y), New Brunswick (+19.8% y-o-y), and Newfoundland (+12.8% y-o-y). They increased the less Nova Scotia (+5.4% y-o-y), Quebec (+6.8% y-o-y), BC (7.0% y-o-y), and Alberta (8.1% y-o-y).
On a monthly basis, insolvencies soared by 8.4% m-o-m seasonally-adjusted (sa) in October. The details show an increase in both bankruptcies (+10.5% m-o-m) and proposals (+7.7% m-o-m). At the provincial level, insolvencies rose in every province. They increase the most in PEI (+27.1% m-o-m), BC (+20.4% m-o-m), New Brunswick (+18.0% m-o-m), and Saskatchewan (+11.1% m-o-m). They rose the least in Newfoundland (+0.7% m-o-m), Quebec (+4.5% m-o-m), Alberta (+5.1% m-o-m), and Manitoba (+7.3% m-o-m).
Relative to 2019, insolvencies in Canada are currently 9.8% higher, with proposals being 42% above their 2019 levels, while bankruptcies are 38% below. We note that the level of insolvencies is higher compared to pre-COVID in BC (+35%), Ontario (+31%), Manitoba (+30%), Alberta (+27%), and Saskatchewan (+17.2%).
The level of insolvencies is still well below pre-pandemic in Newfoundland (-28%), Nova Scotia (-23%), New Brunswick (-16%), Quebec (-14%), and PEI (-5%).
We note that the level of proposals is well above its pre-pandemic level in all provinces, led by BC (+79%), Manitoba (+74%), Alberta (+70%), Saskatchewan (+59%), and Ontario (+57%),
The consumer insolvency rate (number of insolvencies per 1000 people aged 15 and over) rose to 0.366 in October from 0.337. The insolvency rate is the highest in New Brunswick (0.480), Alberta (0.445), Nova Scotia (0.432), and Quebec (0.396). It is the lowest in BC (0.263), Manitoba (0.297), Saskatchewan (0.354), and Ontario (0.359).
Compared to 2019, the insolvency rate is 0.025 lower nationally. It has increased the most in Manitoba (+0.037), Alberta (+0.031), Ontario (+0.029), and BC (+0.021). It is lower in Nova Scotia (-0.223), New Brunswick (-0.210), Newfoundland (-0.197), PEI (-0.140) and Quebec (-0.127).
Business insolvencies decrease 3.6% m-o-m seasonally-adjusted in October (-5.1% 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 (-11.0% y-o-y), while proposals are higher (+13.2% y-o-y)). Bankruptcies represent about 71% of business insolvencies. On a year-on-year basis, the increase in business insolvencies at the national level was mainly the result of higher insolvencies in Ontario (+18% y-o-y) and BC (+58% y-o-y).
By industrial sectors, insolvencies increase the most y-o-y in transportation and warehousing, and in real estate, while they declined the most in accommodation and food services, manufacturing, and wholesale trade.
Compared to pre-pandemic levels, business insolvencies in Canada are 53% higher, with BC (+213%), Ontario (+104%), Manitoba (+96%), and Quebec (+36%) being the main contributors.
In Alberta, insolvencies increased by 5.1% m-o-m sa. in October and were 8.1% higher compared to the same month last year. Over the past 12 months, there have been 19.5k insolvencies, its highest level on record. On a seasonally-adjusted basis, the higher insolvencies in October came from a rise in proposals (+6.0% m-o-m sa), while bankruptcies eased (-0.9% m-o-m sa). We note that the level of proposals is currently about 70% above its pre-pandemic level, while bankruptcies are 56% below pre-COVID. On the consumer side, the insolvency rate rose to 0.445 from 0.426, the second highest in Canada and close to a record high. On the business side, insolvencies are 14.8% lower than in October of last year, with a 47% y-o-y increase in proposals, while bankruptcies are 25% higher compared to last year.
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Independent Opinion
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