The Canadian economy in the third quarter did better than analysts had expected, but gathering storm clouds may soon have an impact on the promo industry.

Statistics Canada reports that the Canadian economy grew 2.9% in Q3, down from 3.2% in Q2 but still a better performance than experts had anticipated. However, the good news was tempered by reports that consumer spending fell in Q3 due to continuing inflation and high interest rates. A resulting decrease in buying ahead of the holidays has resulted in retailers accruing too much inventory that they’re struggling to offload.

Growth was driven by a rise in exports, including crude oil and bitumen, and nonresidential structure starts; it was dampened by a slowing in residential real estate investment, as housing prices and overall housing activity have fallen.

Meanwhile, the overall inflation rate fell in Q3, from 7.6% in July, to 7% in August, to 6.9% in September, which held steady into Q4. Inflation peaked in June at 8.1% – since March, the Bank of Canada has been trying to tame it with a series of interest rate hikes. The seventh and last increase of the year took place on Dec. 7, when the Bank raised the key interest rate by half a percentage point to 4.25%. It’s the latest move in one of the quickest monetary tightening cycles in the Bank’s history.

Analysts say the economy will slow further in Q4 in response, though wages were up 5.6% year over year in October. Unemployment fell slightly from 5.2% in both September and October to 5.1% in November, when the country added 10,000 jobs, mostly in the finance, insurance, real estate, rental and leasing, manufacturing, information, culture and recreation sectors. Construction, as well as wholesale and retail trade, saw the most turnover.

But tremors were felt throughout the economy last month when tech companies – including major firms like Amazon, Meta and Twitter – announced they’d be laying off tens of thousands of staff worldwide as a recession looms. Back in the spring, Meta was planning aggressive hiring in Canada, with plans to bring on about 2,500 people. However, last month CEO Mark Zuckerberg said the California company would be cutting 13% of its global workforce, or about 11,000 jobs. In a letter to staff, he blamed overly aggressive growth in respond to COVID-era consumer trends that have since slowed.

Promo End-Clients Continue to Buy

Meanwhile, the promo industry in Canada continues to enjoy post-COVID buying enthusiasm after many months of strict lockdowns during the pandemic. Danny Braunstein, the Winnipeg-based director of client success for Top 40 distributor BAMKO (asi/131431) in Canada, says Q3 was a record quarter for his company. “Anecdotally, we’re hearing about economic headwinds,” he adds. “The combination of increased interest rates plus high inflation is creating a lot of pressure on companies to watch budgets and spend carefully.”

While he’s keeping his eye on layoffs, Braunstein says so far they seem to have been in specific industries, such as tech, and less frequent in sectors like manufacturing. He’s also looking forward to further improvement in the supply chain. In fact, this week, the Chinese government announced that it’s lifting many restrictions and testing requirements that have been part of its “zero-COVID” policy, which has promo products firms cautiously optimistic about further improvement.

“Right now, the supply chain is marginally better, and freight rates have fallen, but staffing remains a challenge,” Braunstein says.

“The combination of increased interest rates plus high inflation is creating a lot of pressure on companies to watch budgets and spend carefully.” Danny Braunstein, BAMKO Canada

At Lineaire Infographie Inc. (asi/253727) in Laval, QC, President Guy Fortier says Q3 sales were up 40% year over year, and Q4 numbers are on track to be 30% above what they were in 2021. “We’re really not seeing clients’ purchasing being impacted by interest rate pressure,” he says. “Some have mentioned concerns about layoffs, but lack of staff remains a problem. The supply chain, though, has gotten better, and we expect it will continue to improve next year.”

Sergio Munoz, vice president of business development for Vaughan, ON-based Debco, part of Top 40 supplier HPG (asi/61966), also says they have yet to feel the impact of a recession on sales as they continue to contend with staffing challenges. “It’s hard to tell whether we’re servicing pent-up demand or aggressive Q4 business, but our print shop hasn’t stopped all year,” he says. “We’re fortunate to be enjoying a very busy Q3 and Q4.”

The faster-than-expected growth in Q3 and low unemployment rate in the beginning of Q4 point to some stabilization, says Munoz, which “give me a bullish outlook for the rest of the year and into early 2023.”