Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Insolvencies eased by 0.9% m-o-m on a seasonally-adjusted basis (SA) in September, following a sharp decline in August. We note that the data has been quite volatile since the beginning of the year, even on a seasonally-adjusted basis. Nevertheless, looking through the volatility, it appears that insolvencies are stabilizing in recent months.
The consumer insolvency rate (insolvencies per 1000 population) eased slightly in September, but 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 edged higher in September on a seasonally-adjusted basis and are higher than for the same month last year. Despite the increase over the past three years, 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 for most of 2024 and proposals (a renegotiation of terms) are well above their pre-pandemic level. On the business side, we note that insolvencies seem to have eased in recent months.
Insolvencies declined 0.9% m-o-m in September on a seasonally-adjusted basis. Insolvencies have been quite volatile so far this year, even on a seasonally-adjusted basis, and seems to have stabilized somewhat. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 8.9% compared to the same month last year. This resulted from a 9.5% y-o-y rise in proposals and a 6.7% y-o-y increase in bankruptcies. It’s important to note that proposals represent about 78% of total insolvencies.
Compared to last year, insolvencies are higher in most provinces, except in Saskatchewan (-8.6% y-o-y), BC (-8.5% y-o-y), and PEI (-8.5% y-o-y). Insolvencies increased the most in Ontario (+18.6% y-o-y), Newfoundland (+18.5% y-o-y), Alberta (+8.5% y-o-y), and Quebec (+7.8% y-o-y).
On a monthly basis, insolvencies eased by 0.9% m-o-m seasonally-adjusted (sa) in September. The details show a decline in both bankruptcies (-1.3% m-o-m) and proposals (-0.9% m-o-m). At the provincial level, insolvencies were mixed. They decrease the most in PEI (-8.6% m-o-m), Saskatchewan (-7.0% m-o-m), BC (-5.5% m-o-m), and Manitoba (-4.0% m-o-m). They rose the most in New Brunswick (+7.0% m-o-m), Newfoundland (+6.8% m-o-m), and Nova Scotia (+2.8% m-o-m).
Relative to 2019, insolvencies in Canada are currently 0.3% higher, with proposals being 31% above their 2019 levels, while bankruptcies are 44% below. We note that the level of insolvencies is higher compared to pre-COVID in Alberta (+21%), Manitoba (+21%), Ontario (+18%), BC (+13%), and Saskatchewan (+5%). The level of insolvencies is still well below pre-pandemic in New Brunswick (-30%), Nova Scotia (-30%), PEI (-29%), Newfoundland (-29%), and Quebec (-18%).
We note that the level of proposals is well above its pre-pandemic level in all provinces, except in PEI (-11%), New Brunswick (-1%) and Newfoundland (-1%), led by Manitoba (+67%), Alberta (+59%), BC (+44%), Saskatchewan (+43%), and Ontario (+43%).
The consumer insolvency rate (number of insolvencies per 1000 people aged 15 and over) eased to 0.333 in August from 0.338. The insolvency rate is the highest in Alberta (0.425), Newfoundland (0.416), New Brunswick (0.394), and Nova Scotia (0.391). It is the lowest in BC (0.221), Manitoba (0.275), PEI (0.290), and Saskatchewan (0.321).
Compared to 2019, the insolvency rate is 0.039 lower nationally. It has increased the most in Manitoba (+0.023), Alberta (+0.022), Saskatchewan (+0.026), and Ontario (+0.017). It is lower in New Brunswick (-0.237), Nova Scotia (-0.234), PEI (-0.189), Newfoundland (-0.187), and Quebec (-0.138).
Business insolvencies increased 2.8% m-o-m seasonally-adjusted in September (+11.5% y-o-y) and followed a sharp decrease in August. The increase in business insolvencies over the past year, representing less than 5% of total insolvencies, is due to a rise in proposals (+33.7% y-o-y) and to bankruptcies (+4.9% y-o-y). Nevertheless, bankruptcies represent about 75% 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 (+26.3% y-o-y) and BC (+22.7% y-o-y).
The most affected sectors are other services, manufacturing, construction, and accommodation and food services. Altogether, these sectors account for the increase in insolvencies over the past year. On the flip side, the number of insolvencies declined compared to last year for professional, technical and scientific services, wholesale trade, and administrative and support services.
Compared to pre-pandemic levels, business insolvencies in Canada are 60% higher, with BC (+155%), Ontario (+83%), and Quebec (+66%) being the main contributors.
In Alberta, insolvencies eased by 1.7% m-o-m sa. in September and were 8.5% higher compared to the same month last year. Over the past 12 months, there have been 19.4k insolvencies, its highest level on record. On a seasonally-adjusted basis, the lower insolvencies in September came from a drop in bankruptcies (-24.0% m-o-m sa), while proposals increased (+1.8% m-o-m sa). We note that the level of proposals is currently about 59% above its pre-pandemic level, while bankruptcies are 56% below pre-COVID. On the consumer side, the insolvency rate eased to 0.425 from 0.433, the highest in Canada and close to a record high. On the business side, insolvencies are at the same level as in September of last year, with a 50.0% y-o-y increase in proposals, while bankruptcies are 40% lower compared to last year.
Looking for more ? Subscribe now to receive Economic updates right to your inbox here!
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.