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 aren’t supposed to be normal times, but a period where labor markets are tight and a booming population should be sparking more demand. It isn’t.
Canadian Business Insolvencies Climbed 36% Higher
Canadian business insolvencies are returning to a healthy level once again. Business filings climbed 10% higher to 304 in February, bringing the 12-month total to 3,548 insolvencies. It’s an increase of 36% compared to the previous 12-month period, and the most since 2020. It sounds huge, right? It is and isn’t, depending on how you view it.
Canadian Business Insolvencies
The number of business insolvency filings made in the 12 months ending in February for each year.
Source: OSB; Better Dwelling.
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.
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. The types of businesses filing for insolvency are also an interesting point.
It’s A Hard Time To Be In Hospitality, Retail, or Even Construction
The usual suspects hit by the pandemic continue to decline, despite a return to “normal.” Accommodation & Food Service insolvency filings climbed 48.5%, representing 16% of all filings—the largest share for any industry. Retail wasn’t too far behind with filings rising 41.8%, representing the third largest industry at 11% of total filings. Both industries should have benefitted from the population boom increasing demand, the fact they aren’t should raise red flags.
Rising insolvencies in real estate-related industries is one of the more surprising ones. Construction insolvencies jumped 46% in February, representing 15% of total insolvencies—the second largest share of any industry. Real estate and Rental and Leasing saw more modest growth, rising 19% over the 12-month period, representing 4% of total insolvency filings. A sharp increase for insolvencies while prices are soaring, and building activity is near a record high, isn’t exactly a normal combination.
Over the past few years, oil & gas insolvencies became a regular area of concern. It’s now the only major industry that saw the number of insolvency filings decline. That’s a major change of pace in contrast to the past few years.
Canadian business insolvencies are climbing, and looking at just the numbers—it seems like a return to normal. In the broader context of the economy, there’s a few points worth stewing on. Employment, wages, and building are supposedly booming, meaning this isn’t a normal period. It should be one where businesses are thriving, not a typical environment for businesses to seek creditor protection.
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.