Canada’s unemployment rate rose to 6.9% in December, now up 210 basis points (bps) from the 4.8% low in June 2022 (below in blue). The U.S. unemployment rate, at 4.2%, has risen 80 bps since it bottomed in April 2023. There has never been a time when unemployment has increased this much outside of recessions.Moreover, after 27 months of an inverted yield curve, Canada flashed another recession warning in October when the Treasury curve finally turned upward-sloping—longer yields moved higher than short (shown below since 2020, via Y-Charts).

Record fiscal deficits have undoubtedly propped up the U.S. economy more than Canada’s in the past couple of years. Yet, after a record 28 months of inversion, the U.S. yield curve also turned positive-sloping in December (U.S. 10-year minus 2-year yield below in red, since 1975, with the 10-year minus 3-month yield in blue). There has never been a move to positive sloping after a period of inversion that did not signal the onset of recession (grey bars below).

When the yield curve turns positive sloping (see blue line below since 1985), it has always been followed by months of rising unemployment (in red, since 1985, courtesy of Bravos Research) while central banks try to ease credit conditions for the real economy.

Most developed economies have simultaneously reached this point of faltering economic momentum, rising unemployment, record debt, and uneconomic asset prices. The masses have come to expect governments to backstop everything (an impossible mandate). Incumbents are out of favour worldwide, but this will be harder to fix than just changing figureheads and political parties.

Canada’s Prime Minister resigned, as expected, just as Canada announces more troubling economic data. The whole saga of PM Trudeau’s downfall is actually perfectly illustrated by the loonie; and it applies to a lot more than Canada. It’s a warning to both existing governments as well as the successors who take over for them after voters have had enough. Here is a direct video link.