Canadian Business Insolvencies Rip Higher

Canadian business insolvencies are back with a fury. Business insolvency filings with the Office of The Superintendent of Bankruptcy (OSB) climbed sharply in February. The number of businesses seeking creditor relief is now back to normal levels, before pandemic relief was rolled out.

The problem is these are not supposed to be normal times, but a period where labor markets are tight and a booming population should be sparking more demand.   Well, it isn’t.

The number of business insolvency filings made in the 12 months ending in February for each year

Year        Insolvencies
2019      3,590
2020      3,702
2021      2,518
2022      2,605
2023      3,548


Keep in mind that February 2020 was before the pandemic, so the 12-month period was a typical level. While February 2023 numbers are significantly higher than the past two years, it’s not out of line with historical filing volumes. However, that doesn’t mean it’s an issue that should be dismissed. This is a very different environment, and it’s problematic where these insolvencies are occurring.

Accommodation & Food Service, Construction, and Retail represented 42% of all insolvency filings.  These are the industries that should have benefitted from the population boom and increasing demand.   The fact they are not should raise some red flags.

Typically, rising insolvencies are accompanied by low wage growth and unemployment. Currently we’re seeing the opposite, with wages rising and the unemployment rate just above the record low.

Either the data points showing a weak economy are just a blip, or the ones showing a strong economy are.

Who knows which one is right, but it’s hard to find a prominent economist not betting on the latter.


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