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

Bottom line

Insolvencies declined in September on a seasonally-adjusted basis, likely taking a temporary pause in their gradual rising trend, and remained close to their highest level since the start of the pandemic. As such, proposals (a renegotiation of terms) are above their pre-pandemic levels at the national level and in almost every province. We also note that the total level of insolvencies in Saskatchewan, BC, Alberta, and Manitoba is above its pre-pandemic one; all those provinces have higher than average levels of debt-to-disposable income (see Fig 6).

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). A slowing economy is likely to be associated with a rise in unemployment, which would further squeeze on consumers. Moreover, previous rate hikes have not yet fully filtered through to household borrowing with many homeowners having to renew their mortgages at higher rate over the next few years. All those factors point to further rises in insolvencies. The question is whether the labour market, with its low albeit rising unemployment rate, and the vast amount of saving accumulated during the pandemic will continue to provide some relief. A deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies.

In Alberta, the strength of the oil sector, with high revenue levels and the associated tailwind to the economy, and a robust labour market are also holding back insolvencies. However, Albertan households have some of the highest debt-to-income ratios, making them vulnerable to rising interest rates, and have seen a bigger decline in their purchasing power than other provinces. In addition, we note that the level of insolvency and proposals (a renegotiation of terms) are well above their pre-pandemic one.

Insolvencies rose 4.6% m-o-m in September on a seasonally-adjusted basis, after an increase in August. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 15.8% compared to the same month last year. This resulted from a 19.6% y-o-y rise in proposals and a 4.6% y-o-y increase in bankruptcies. Compared to last year, insolvencies increased in every province, except in Newfoundland where they are 18.2% lower. Insolvencies had the most significant rises in PEI (+30.6% y-o-y), Manitoba (+28.2% y-o-y), BC (+22.1% y-o-y), Saskatchewan (+20.3% y-o-y), and Alberta (+18.4% y-o-y). The smallest increases, yet still big in many cases, were in New Brunswick (+2.4% y-o-y), Nova Scotia (+13.7%), Quebec (+14.0% y-o-y),and Ontario (+16.6% y-o-y).

On a monthly basis, insolvencies declined 4.6% m-o-m seasonally-adjusted (sa) in September. The details show the decrease was due to both lower proposals (-4.3% m-o-m) and bankruptcies (-6.0% m-o-m). At the provincial level, insolvencies decreased the most in Newfoundland (-20.6% m-o-m), New Brunswick (-7.7% m-o-m), Ontario (-5.1% m-o-m), and Quebec (-4.9% m-o-m).

Relative to 2019, insolvencies in Canada are 8.9% lower, but remain on a rising trend. However, we note that the level of insolvencies is higher compared to pre-COVID in BC (+22.2%), Manitoba (+17.9%), Saskatchewan (+15.0%), and Alberta (+9.3%). The level of insolvencies is still well below pre-pandemic in Newfoundland (-40.6%), Nova Scotia (-29.5%), New Brunswick (-28.9%), Quebec (-25.9%), and PEI (-20.8%).

We note that the level of proposals in Canada is well above its pre-pandemic level (+18.8%). The level of proposals is also above its pre-COVID level in most provinces, except in Newfoundland (-24.4%) and Quebec (-6.0%). It is the most above 2019 levels in BC (+67%), Saskatchewan (+60%), Manitoba (+52%), Alberta (+40%), and Ontario (+26%). This suggests that an increasing share of households are facing financial stress.

In Alberta, insolvencies declined by 4.4% m-o-m sa. and are 18.4% higher compared to the same month last year. Over the past 12 months, there have been 17.2k insolvencies, on par with pre-pandemic levels at their highest levels on record. On a seasonally-adjusted basis, the decrease in insolvencies in September came from both lower proposals (-5.1% m-o-m sa) and bankruptcies (-1.5% m-o-m sa). We note that the level of proposals is currently about 38% above its pre-pandemic level, while bankruptcies are 47% below pre-COVID.

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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.