Economic Predictions and question mark graphic.

With a slew of negative economic data coming out recently about the Canadian economy, the chances are rising that the Bank of Canada (BoC) will cut their policy rate by another 0.25 per cent at their next meeting on Wednesday, July 24, 2024.

Most recently, Statistics Canada reported that sales fell from April to May by 0.8 per cent, showing a broad based softening of consumer spending but led most prominently by a drop in food and beverage sales. Statistics Canada also predicts that the soft sales will persist through June with a 0.3 per cent reduction from May.

When sales are softening like this, despite our growing population and the fact that prices are not deflating, it’s a strong signal that our economy is heading towards recession in the near future if something doesn’t shift to help consumers out.

The weak sales numbers follow an employment report a few days earlier that showed our economy shed1,400 jobs in June when economists predicted the economy would add 25,000 new jobs. Shedding jobs means companies are cutting back on plans for expansion due to predicted slower sales (either through laying off employees or deciding to remove vacant job offers and leave those positions unfilled). Again, combined with our growing population, this is bad news and our unemployment rate rose to 6.4 per cent as a result – with an increase of 42,000 unemployed individuals from May to June for a total of 1.4 million unemployed.

Last but not least, we received the June inflation report last week which showed that inflation dropped to 2.7 per cent. This was good news for the BoC after the surprise increase in May’s inflation rate to 2.9 per cent (from 2.7 per cent in April). Inflation coming back down shows that our economy is still trending towards a more balanced position with supply able to meet demand.

All together, we see that inflation data supporting the long-term downward trend the BoC wants, combined with worrying signs in sales and unemployment that we are in danger of tilting too far into a full recession (which the BoC does not want to happen). This leads us to believe there is a good chance that the BoC will cut the policy lending rate again on Wednesday by another 0.25 per cent.