Canada’s unemployment rate rose to 6.2% in the second quarter of 2024, up from 5.0% in the same period a year earlier, according to Statistics Canada. This represented approximately 1.3 million people out of work, a notable increase from the previous year. Real GDP growth remained sluggish, expanding by just 0.2% in the second quarter of 2024, raising concerns of economic stagnation.
Elevated borrowing costs, with the Bank of Canada keeping its policy rate at 5.0%, have significantly dampened activity in the housing and manufacturing sectors. Residential construction output fell by 2.8% over the quarter, while manufacturing output dropped by 1.9%. High interest rates have also strained household budgets, with debt servicing costs consuming a larger share of disposable income.
Retail sales and domestic tourism also experienced downturns as consumers pulled back on discretionary spending. Expenditure on recreation and hospitality declined by 3.5% compared to the previous year. Due to rising employment uncertainty, many households have shifted towards precautionary saving, causing the household savings rate to rise to 7.8% in mid-2024, up from 5.1% a year prior.
In contrast, certain knowledge-based and clean-technology service sectors continued to show resilience, continuing to recruit highly skilled labor. Exports of digital services and clean-tech solutions to non-US markets grew by 4.1% over the same period, providing a partial buffer for the broader economy.
Evaluate the effect the increase in unemployment in the second quarter of 2024 from the same period the year before is likely to have had on the Canadian economy.
