3Q 2024 Canada Economic Overview

Dec 31

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Leading Economic Indicators

Canada’s Leading Economic Index (LEI), published by the Conference Board of Canada, fell by 0.5% in September 2024, marking the third consecutive monthly decline. Over the six months ending September 2024, the LEI decreased by 1.8%, contrasting with the 2.3% growth observed in the prior six months. The economic outlook remains cautious, with forecasts indicating slower GDP growth of 0.9% for Q4 2024.

Monetary Policy and Inflation

The Bank of Canada maintained its policy interest rate at 5.0% during its September meeting, emphasizing the importance of achieving the 2.0% inflation target. Inflation, as measured by the Consumer Price Index (CPI), increased by 0.3% in September, bringing the year-over-year rate to 3.2%. Core inflation, excluding food and energy, stood at 2.8% over the same period. Persistent price pressures in food and housing continue to challenge policymakers.

Business and Consumer Confidence

The Business Barometer® Index, published by the Canadian Federation of Independent Business (CFIB), edged up slightly to 49.5 in September but remains below the historical average of 65. Meanwhile, consumer confidence, tracked by the Conference Board of Canada’s Consumer Confidence Index, remained steady at 87.3 in September. While optimism about future economic conditions improved marginally, concerns about inflation and rising debt burdens persisted among households.

Labor Market

Canada’s labor market added 18,000 jobs in September 2024, with gains concentrated in healthcare and construction, according to Statistics Canada’s Labour Force Survey. The unemployment rate held steady at 5.8%, while wage growth was reported at 4.0% year-over-year, outpacing inflation. Youth unemployment (ages 15–24) improved slightly to 10.1%, reflecting increased seasonal hiring.

Housing Market

Housing starts declined by 4.3% in September to an annualized rate of 210,000 units, reflecting tighter credit conditions and elevated interest rates. Existing home sales fell by 5.8% compared to August, with average national prices declining 1.9% month-over-month. The Canada Mortgage and Housing Corporation (CMHC) reported a 10.8% year-over-year increase in rental prices, with urban centers seeing the steepest hikes.

Manufacturing and Services Sectors

The Ivey Purchasing Managers Index (PMI) decreased to 49.1 in September, indicating a contraction in overall economic activity. The manufacturing sub-index fell to 46.3, driven by weaker export demand and high input costs. Conversely, the services sector showed resilience, with the PMI for services rising to 54.0, reflecting steady growth in healthcare and professional services.

Trade and Retail Sales

Canada’s trade surplus narrowed to CAD 1.2 billion in August, as exports decreased by 2.1%, primarily due to lower energy and automotive shipments, according to Statistics Canada’s trade balance report. Retail sales rose 0.4% in September, driven by strong performances in grocery and general merchandise. E-commerce continued its growth trajectory, up 6.2% year-over-year, despite declines in automotive and furniture sales.

Mining and Oil and Gas Sectors

Crude oil prices declined by 3.7% in September to close at CAD 78.50 per barrel, influenced by global demand concerns. Year-over-year, crude oil prices were down 7.5%. Natural gas prices fell 3.1% year-over-year, driven by mild weather conditions. In the mining sector, production of potash and nickel saw year-over-year gains of 3.5% and 4.2%, respectively, while coal mining output decreased by 2.4%. Exports of precious metals remained steady, reflecting stable global demand amid economic uncertainties.

Forestry Sector Overview

The forestry sector faced mixed results in 3Q 2024. Softwood lumber exports to the United States increased by 3.9% year-over-year, supported by a temporary easing of tariffs. However, domestic demand for wood products fell by 3.1% due to slowing residential construction. Higher transportation costs, up 6.2% year-over-year, and ongoing labor shortages further pressured the sector’s performance.

Equity Markets

The S&P/TSX Composite Index ended September up 2.9%, buoyed by gains in energy and technology stocks. However, the index remains down 6.7% year-to-date. Volatility, as measured by the Canadian Volatility Index (VIXC), averaged 20.5 in September, reflecting ongoing investor caution.

Key Challenges and Opportunities

Canada continues to face headwinds from elevated inflation, high interest rates, and global economic uncertainties. However, opportunities in renewable energy and technology sectors are emerging. The federal government’s CAD 10 billion Green Investment Fund, announced in September, aims to accelerate clean energy initiatives and foster job creation in 2025 and beyond.

Outlook for 2025

Canada’s economy is projected to grow by 1.3% in 2025, with inflation gradually subsiding to 2.4% by mid-year. Policymakers remain focused on fostering economic stability while addressing structural challenges in housing affordability and labor market inefficiencies. Businesses and households should anticipate a prolonged period of adjustment as the economy navigates these challenges.

Sources:

1. Conference Board of Canada, Monthly Economic Indicators Report, September 2024

2. Bank of Canada, Monetary Policy Report, September 2024

3. Canadian Federation of Independent Business (CFIB), Business Barometer®, September 2024

4. Statistics Canada, Labour Force Survey, September 2024

5. Canada Mortgage and Housing Corporation (CMHC), Rental Market Report, 2024 Q3 Report

3Q 2024 Canada Economic Overview

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