WATCH: Are We There Yet?

Date Published: May 25, 2023

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Since August of last year, the share of forecasters calling for a recession crossed 50%, but someone forgot to tell the economy which keeps churning out jobs at an above-average pace. The data is still trying to get to a stage of "normalization", before there can be a risk of eventually entering a recessionary stage. So when U.S. regional bank failures took center stage, one the most asked question from clients was whether this would finally produce that recession, or offer no path to a soft landing?
In this client presentation, I address this and other questions.    
For Canada, this cycle is uniquely complicated by surging population growth that is altering how we identify risks, the degree of labour market slack, and even the end-point on the neutral interest rate. A persistent large population influx would keep tension on housing demand and prices. We estimate that Canada could fall short of supplying almost a quarter-million housing units by 2025.  The solution is not solely a function of building faster, since supply responds with a lag to demand flows. Although the Bank of Canada does not control this demand influx, it must respond to the economic and financial risks it creates. The consumer is king in the economy, and a persistence in stronger housing demand would feed into retail sales, renovation activity, wealth and can even maintain a higher floor under inflation expectations.