The Road Ahead: Pictures of Federal Budget 2025

 

With Tuesday’s federal budget receding into history, the opportunity for more reflection emerges and the best way to do that is to look at some charts that consider the budget's projections going forward.  In terms of overall impressions, the mantra of this budget was simply “to spend less so we can invest more”.  After looking at the numbers, the reality is really “to spend less on some things so we can spend a lot more on some other things”.  It bills itself as a transformative budget to address a changing economic world that will build a confident, secure Canada though generational investments in infrastructure and defence and does so largely by adding significantly to the national debt through a series of large deficits. 

The expenditure trajectory is largely a continuation of what was.  However, there is a compositional shift in that spending away from spending on social infrastructure and towards physical infrastructure.  In essence, the federal budget seeks to grow the economy by investing in a lot of public infrastructure projects and national defence and then providing incentives to encourage the private sector to join in. The broad dimensions of both the spending and the outcomes are summarized in the following charts.

Figure 1 plots total federal revenues, expenditures (left axis) and the deficit (right axis) starting from 2010-11and going forward to 2029-30.  As well, each series is fitted with a linear trend.  By 2029-30, total revenue is projected at $583.3 billion and total expenditure at 639.9 billion for a deficit of $56.6 billion.  From 2025-25 to 2029-30, total revenues will grow by 14.1 percent, total expenditures will grow 16.9 percent and there will be $321,7 billion in accumulated deficits. Note the linear trends.  The deficit over the long term is growing as the gap between revenues and expenditure is rising.  

 

A lot is going to be borrowed and servicing the debt will become more expensive over time.  Figure 2 plots both the nominal value of debt charges ($mm) as well as the total expenditure share of debt charges (percent) and does so over a much longer-term perspective starting from 1966-67.  Staring in 2020-21, debt charges began to increase dramatically because of both increased debt (due to COVID) as well as rising interest rates to service the debt and trend will continue.  On the bright side while the debt charge share of total spending is also rising and is projected at 12 percent by 2029-30, it is well below the peaks attained during the 1990s when nearly one third of every dollar of federal spending went to service the debt.

 

Figure 3 also provides a long-term perspective on the net debt both in nominal dollars as well as a share of GDP.  The upward trajectory of the nominal debt after 2018-19 is quite startling with the net federal debt expected to hit 1.798 trillion dollars by 2029-30. Indeed, the period from 2024-25 to 2029-30 will see $404 billion dollars added to the net debt representing over one fifth of the total net debt accumulated in just six years.

 

Of course, all this spending is targeted at dealing with the turbulent world we live in and is being justified as the big transformative spending we need to build Canada’s economy in the face of global competition, tariffs, and the erosion of our relationship with the United States.  Ultimately, the payoff is supposed to be a robustly growing and productive economy.  The next few years however see nominal GDP pretty much close to its historical average of about 4 percent and even assuming population grows at a more historic one percent annually, real per capita GDP is not poised to take off any time soon.  

 

Figure 4 plots real per capita GDP (deflated using the CPI by the way) and its percent growth over the long term.  Notice our productivity dilemma nicely summarized by the long-term downward trend of the growth rate.  Based on nominal GDP growth as forecast in the budget, population growth at one percent annually and inflation at two percent, real per capita GDP is projected to nudge upwards going forward from 2024-25.   It is going to be a tough few years.  It is a gamble to spend all this money with the long-term success predicated on the private sector joining in.  Hopefully, it will work.

Thunder Bay, The Conference Board and Smart Growth

 

The Major City Insights for Thunder Bay by the Conference Board of Canada was released October 15^th and the report essentially summarizes the economic situation in Thunder Bay as “Local economy treads water” with the key points being as follows:

· Thunder Bay faces a tepid economic outlook featuring mixed performances from the various sectors of its economy. Ongoing work on the city’s $1.2-billion jail remains an economic bright spot, but other important sectors face a range of difficulties.

 

· Plans for at least two local lithium plants remain in play, but faltering demand for electric vehicles (EVs), which use lithium in their batteries, and the recent removal of the federal EV mandate could scupper them. The big drop in lithium prices since 2022 is a bad sign for the industry.

 

· Modest recent improvements in lumber and pulp prices spell some optimism for the long-suffering local forest products industry, although this year’s big jump in U.S. softwood lumber tariffs to a total of 35.19 per cent is a setback.

· Thunder Bay’s real GDP has largely floundered against this uninspiring backdrop. We forecast no change in 2025 following a 0.2 per cent easing in 2024, then a 0.7 per cent rise in 2023. Fractional 0.7 per cent growth is our call for 2026, followed by annual advances just above 1 per cent in 2027–29.

 

· The window of migratory opportunity might have closed for Thunder Bay due to sharply lower federal immigration targets that are limiting the number newcomers from abroad. Rising return-to-office orders from firms and governments, meanwhile, will eventually limit other Ontarians’ ability to take advantage of very affordable local housing.

Out of 24 CMAs covered in the Conference board reports,Thunder Bay ranks 24^th in terms of real GDP growth forecast for the 2026 to 2029 period.  Total employment is expected to remain flat going forward and while population for the CMA is forecast at 134,000, it will remain at that level for the foreseeable future. On the other hand, low growth is not negative growth and business owners in Thunder Bay appear to be well adjusted to a low growth environment given that the most recent survey results out of Thunder Bay Ventures find them cautiously optimistic amid economic challenges.

Needless to say, it is not the most auspicious backdrop for the unveiling of the City’s Smart Growth strategy.  What the ultimate plan to address the City’s economic future will be is interesting to say the least and community input is being solicited on the draft as well as being subject to review by assorted City Standing Committees.  Despite what seems to be some robust construction activity underway in the city in terms of residential and hotel activity, it appears that this is not sufficient to offset what the Conference Board views as “tepid” economic performance.

Indeed, while the City seeks to address growth, a lot of the emphasis to date seems to be on assessment growth and growing the property tax base which are usually not the main targets of economic growth inducing policies.  It would be like next week's federal budget making the case that moving Canada's economy forward requires more people paying more income taxes. The aim should be growing the city’s level of economic activity to increase  both real total and real per capita GDP through private and public sector investment in productive job creating activities.  The City of Thunder Bay Smart Growth plan proposes two key measures to guide growth over the next decade:

• Grow the property tax base by 3% annually

• Grow the population by 1% annually

It would appear that in the end, this is not really an economic growth plan per se but a plan to try and grow Thunder Bay’s municipal tax base that is accompanied by a lot of social and quality of life and community goals masquerading as economic targets.  Indeed, the entire approach resembles a much earlier initiative by Thunder Bay Ventures circa 2005 called Thunder Bay Fast Forward concerned with growth in the midst of the forest sector crisis which also generated sets of indicators. Nevertheless, this latest effort at growth and measurement will probably go over well given the general level of economic literacy in the community. One suspects that perhaps such an approach also works well in a city where one-third of employment is broader public sector and public sector construction projects have been key drivers for the last few years. 

Of course, growing both the economy and the municipal tax base are not mutually exclusive goals but it is odd the performance indicators for successful growth do not include real GDP (which incidentally looks somewhat flat going forward) though employment and labour force indicators as well as building permits which are correlated with overall economic growth are included.  However, as the report states, the “key performance indicators such as tax base and population growth are priority metrics”.  In other words, as long as there are more people on public sector incomes paying more property taxes, this plan will be declared a success.

In light of the Conference Board Report, one suspects the response of our civic leadership to square the Smart Growth Plan with the Conference Board report will be to remark they are measuring different things and growth is more than about just measuring economic output – the perennial apples and oranges comparison. They may even claim the Conference Board report is missing the real sources of economic growth and performance just like Statistics Canada is missing the true size of our population with their numbers.  All we can do is wish our municipal leaders good luck on this one.

 

Finances of the City: Hamilton Edition

 

Municipal budget season is underway in cities across Ontario.  Hamilton is a particularly interesting case this year given that the initial start of the 2026 budget season saw an 8.9 percent potential property tax increase presented. Hamilton’s Mayor Horwath has waded into the debate with directions to staff to hold the tax increase to 4.25 percent by finding operational efficiencies that do not involve staff cuts.  However, according to one report, nearly half of the 2026 operating budget increase is being driven by employee costs with the City of Hamilton’s head count up 12 percent since 2022 and now stands at 9,449. 

Getting a grasp on Hamilton’s current municipal finances requires more of a historical perspective.  So, what do Hamilton’s finances look like and how have they evolved? Well, that is a good question and an attempt to provide a long-term perspective on Hamilton’s municipal finances is in order. Data for Hamilton is available for 2000 to 2022 from Ontario’s Ministry of Municipal Affairs Financial Information Return. Hamilton – like quite a few other municipalities – appears to have fallen behind in filing their financial reports with the provincial government so 2023 to 2025 must rely on Hamilton municipal budgets. 

However, these budgets present financial information in a dizzying and confusing array that overwhelm the reader with detail that make the big picture difficult to see.  They are also not standardized in presentation and vary greatly in length with Budget 2023 clocking in at 51 pages, Budget 2024 at 365 pages and Budget 2025 at 434 pages.  Trying to make sense of them can be a slog even for an economist and if there is anything the provincial government should do, it is to speed up the reporting of financial information on FIR so the public can maintain a consistent grasp of the numbers when it comes to municipal finance across Ontario.

Figures 1 to 5 provide a limited overview of some of Hamilton’s key long-term municipal finance indicators.  Figure 1 plots total operating expenditure and total tax revenues for the 2000 to 2025 period.  Total tax revenue grew from $486 million in 2000 to $1244 million while total operating expenditures went from $985 million to $2,163 million.  There is of course no cause for alarm regarding the gap because tax revenues only fund a portion of operating expenditures with the rest coming from provincial and federal grants, user and licensing fees, investment income, etc.…However, as Figure 2 illustrates, the share of total expenditure accounted for by property tax revenues has grown over time with the linear trend showing an increase from an average of about 45 percent to nearly 55 percent – growth of nearly 10 percentage points.  Essentially, municipal ratepayers in Hamilton have been bearing a larger share of municipal operating expenditure over time with average tax revenue per household nearly doubling since 2000 going from $2,544 to $4,863.

 

 

Figures 3 and 4 plot the annual growth rates of total tax revenue as well as total operating expenditure and fits trend lines to the data as well as provide the average growth rate for each series over the 2001 to 2025 period. Both tax revenues and total expenditures exhibit rising growth rates from 2001 to about 2010 and then a decline in the wake of the 2008/09 economic slowdown and then an uptick in growth rates after 2019 to the present.  Over the entire 200 to 2025 period, tax revenues have grown at an average annual rate of 3.8 percent while total operating expenditures have grown at 3.3 percent.  This differential growth has been driven by the rising reliance on taxes over slower growing grants and other revenue sources.

 

 

Finally, Figure 5 looks at the evolution of the municipal headcount as well as the wage and salary cost per employee.  While the recent increases in head count may seem alarming, it turns out that the current numbers have been  higher in the past particularly in the wake of the 2001 amalgamation.  The period from 2005 to 2022 has been relatively stable in terms of municipal employment going from lows of approximately 7,300 to highs of about 8,200.  The period since 2017 has seen steady growth with employment rising from 7,502 to 9,449 at present – an increase of 26 percent.  Since 2017, the number of households in Hamilton has only grown about 12 percent while population has grown nine percent.  As well, between 2000 and 2025, the wage and salary cost (benefits not included) per municipal employee has grown from approximately $36,000 annually to nearly $113,000 in 2025 – essentially a tripling of the cost per employee.  It should be noted that while the average annual rate of increase of wages and salaries per employee in Hamilton form 2001 to 2025 was 4.9 percent, the average CPI inflation rate for Ontario over the same period was 2.3 percent.

 

 

Pulling everything together, it appears that the fiscal challenges affecting the City of Hamilton this year have been brewing for some time.  Tax revenues have been growing as a share of total operating expenditure due to slower growth of other sources of revenue.  While the average annual growth rate of total tax revenues since 2001 has averaged 3.8 percent, since 2021, the percent increases have ranged from 4.5 to 8.1 percent.  Tax revenues have been growing faster than the growth of total operating expenditure but increases in wage and salary costs per employee in particular have been rising faster than tax revenue growth, total operating expenditures, as well as the CPI inflation rate.  Whereas in 2000, employee wage and salary costs accounted for 34 percent of operating expenditures, by 2025 they accounted for nearly 50 percent. Indeed, since 2017, the average wage and salary per employee has been over $100,000 and this does not consider the costs of pensions and other benefits.

While Hamilton is not unique in facing municipal fiscal challenges, the increases of the last four years have been particularly large making this year's budget exercise especially challenging.

 

The Finances of the University: Lakehead’s Exceptional Performance

 

With all the doom and gloom about the finances of Canadian universities these days, it is refreshing to know that some universities have been doing well in coping with all the fiscal challenges thrown at them over the last decade.  Nowhere is this more the case than in Ontario where domestic tuition fees were cut 10 percent in 2018 by the province, and have remained frozen since, provincial government grants have generally been a declining source of revenue and the flow of international students curtailed by the federal government. While Ontario produced Laurentian, it has also produced Lakehead where the last decade has seen a better financial performance than one might have expected which is good news for Thunder Bay, northwestern Ontario and of course the students, staff and faculty at Lakehead.

The evidence is quite convincing.  Figure 1 (and subsequent figures) takes data from the audited financial statements of Lakehead University from 2014 to 2025 and plots total revenues and expenditures.  Between 2014 and 2025, Lakehead’s total revenues grew from $177.3 million to $246.0 million - 38.7 percent – while total expenditures grew from $167.0 million to $230.5 million – a 38 percent increase.  While the pandemic period from 2020 to 2022 saw a dip in revenue growth, since 2022, revenues have managed to grow faster than spending. Indeed, over the period 2015 to 2025, the average annual growth rate of revenues was 3.3 percent compared to 3.0 percent for expenditures.  

 

 

The result has been a decade where the budget has usually been balanced, sometimes with substantial surpluses, and the long-term debt been reduced.  Figure 2 plots Lakehead University’s deficits (-)/surpluses (+) as well as the total long-term debt again from 2014 to 2025.  Out of these 12 budget years, Lakehead ran a surplus 75 percent of the time with an accumulated surplus of $43.9 million while the long-term debt has decreased nearly 16 percent going from $111.5 million in 2014 to $94.0 million in 2025.  The worse deficit year was 2022 with a deficit of $16.7 million in the wake of the pandemic but the three years since has seen growing surpluses with 2025 at $13.5 million.

 

 

Drilling down into some of the data, Figure 3 presents the data for Lakehead’s major revenue sources – provincial government grants and student fees.  In 2025, these sources made up 82 percent of Lakehead’s revenue with the remainder a combination including investment income, research income, ancillary fees, and sales of goods and services.  The narrative regarding provincial government grants should be nuanced by the fact that there are the general operating grants and then more specific restricted grants tied to conditions.  In 2014, the value of the operating grant was $65.3 million, and it then proceeded to decline through to 2019 when it reached $62.9 million.  Note that this decline preceded the arrival of the Ford government in 2018 showing that in the end universities in Ontario do not have any tried-and-true political party friends at the provincial level. Grants then rebounded in 2020 declining to a low of $61.6 million in 2022. Since 2022, the operating grant has been somewhat erratic rising to $66.7 million in 2023, falling to $61.0 million in 2024 and then climbing again to $69.5 million in 2025.  Stable funding it is not.  As for restricted grants, they climbed in fits and starts going from $15 million in 2014 to almost $17 million by 2021 and then rising more steeply to 30.5 million in 2025. 

 

 

While total provincial grants to Lakehead grew 25 percent from 2014 to 2025, the real revenue story is in student fees which rose from $57.5 million to $102.4 million – an increase of 78 percent.  This is even though overall enrolment has grown but not in leaps and bounds.  The revenue increase is largely the result of a compositional shift as more higher tuition paying international students arrived at the university.  Given that many of these students are primarily graduate level and in disciplines that are in demand, it appears the immigration restrictions have not hit Lakehead’s enrolment as hard as some other universities.  This suggests a careful mix of programs tailored to demand.

So, to summarize, Figure 4 presents the average annual growth rates of these major indicators for the 2015 to 2025 period.  Total revenue at Lakehead has grown at an average annual rate of 3.3 percent while expenditures have grown 3 percent.  This in and of itself presents a picture of fiscal sustainability rooted on both the expenditure and revenue side.  While general operating grants have only grown at an average annual rate of 0.7 percent, restricted grants (targeted to some purpose) have grown 8.7 percent annually and student fee revenue has grown 5.5 percent.  And the icing on the cake is that long-term debt has been declining at -1.5 percent annually. 

 

This is extremely good news and evidence that even in today’s challenging university environment, it is possible to succeed both financially and academically as a university offering programs in a fiscally sustainable manner.  Lakehead has managed this operating as it does in a dispersed fashion with campuses in Thunder Bay, Orillia and Barrie making it a province wide university.  This success may indeed serve as a model for future of Ontario’s universities. This success is also a testament to the strength of its board and administrative leadership as well as its students, staff and faculty.  It is nice to have some good news for a change.

The State of Post Secondary Education: Crisis or Opportunity?

 

It is another academic year, and recent reports have helped kick off its start with analysis and introspection regarding the state of university and college education in Canada.  There is the OECD international compendium of indicators titled Education at a Glance 2025 which covers all aspects of education including post-secondary or tertiary education.  Then there is Alex Usher’s Higher Education Strategy Associates compilation The State of Postsecondary Education in Canada 2025. And last but certainly not least there is the Royal Bank’s ominously titled Testing Times Fending off a crisis in Canadian postsecondary education. There is indeed quite a bit of reading here geared towards understanding the current situation with respect to postsecondary education in Canada and other parts of the world.

Canada boasts a highly skilled and well-educated population with 63 percent of population aged 15 to 64 holding some type of post-secondary or tertiary degree attainment. However, in terms of the distribution of those degrees, Canada ranks 26^th out of 41 OECD countries, in the share of 25–34-year-olds with master’s degrees.  Meanwhile, Canada is unique in that it boasts the largest proportion in the OECD – one quarter – of degrees being what they term short-cycle degrees.  These are programmes usually offered by community colleges and similar educational institutions, of at least two years duration, and are vocationally oriented.  While there is often a lament that Canada needs more skills and career-based training, it appears that a large proportion of the system is indeed geared that way.

On the surface, the demand for post-secondary education in Canada should grow in coming years based on demographic projections showing the total number of individuals aged 15 to 19 and 20 to 24 growing until at least the mid 2030s, then levelling off or declining for a few years before resuming substantial growth.  Recall that the 15-19 population pool was shrinking during the 2010 to 2020 period though increases in participation rates combined with the flow of international students helped grow university enrolment.

However, when it comes to public sector spending on tertiary education, Canada is below the OECD average n USD per capita.  Government expenditure on post-secondary in Canada amounts to USD 13,684 per tertiary student compared to the OECD average of USD 15,102.  And, as noted by Alex Usher, spending on higher education as a share of the economy in Canada has been dropping pretty steadily since 2011.  

So, there are challenges facing Canadian postsecondary education spanning financial, technological and social levels.  The financial challenge to post-secondary institutions in Canada is quite serious and has been aggravated by provincial and federal policies.  In Ontario, for example, university tuition for domestic students was cut by 10 percent in 2018 by the Ford government and has been frozen at that nominal level ever since.  Indeed, the RBC Testing Times report notes that most undergraduates in Canada are paying approximately what they would have paid a decade ago.  Universities made up a lot of the revenue by admitting more international students, but that tap has been cut off too by changes in federal immigration policies.  Going forward universities will face tighter revenue circumstances accompanied by rising costs.  After all, inflation has not just hit individuals, but institutions also.

The RBC report notes that post-secondary education and skills they impart are vital to the dealing with the economic changes facing Canada but add that: “Without a new financial arrangement, institutions are forced to make decisions with their viability in mind, rather than the country’s prosperity. These decisions will have important implications for education quality and access, especially in rural communities where workforce shortages are already acute, as well as the country’s ability to retain top talent”. They suggest boosting government funding to the post-secondary sector tied to specific criteria or outcomes.  As well, they think student fees – that is – tuition could play a greater role.  

However, the financial challenge is only the tip of the iceberg given that there are more serious existential challenges: technological and social which are both intertwined with AI.    The rise of AI in the short term is posing challenges to how classes are taught and students graded and assessed but in the longer run will affect the demand for university and college education as well as its role in shaping society.  As an article by Ryan Craig in Forbes argued, AI will likely shrink the university given its potential for personalized learning and independent tutoring. 

More optimistic but not any less transformative, Nick Ladny (also in Forbes) makes the case for the end of college as we know it with AI facilitating customized corporate education, transforming the role of faculty into mentors facilitating human interaction rather than purveyors of knowledge, more decentralized neighborhood campuses, and smartphone provision of education.  Those institutions that adapt quickly to the new reality will survive while others will simply close.  Nimbleness is key to dealing with change and universities in general tend to move slowly.

However, universities and colleges have faced the onslaught of change before and yet here they still are.  I think the next decade will see a major sorting of universities into those that successfully adopt and transition to the world of AI education and those that do not.  There will likely be changes in the types of courses and programs taught given that AI can do much more so much more quickly and effectively.  There will need to be new skill sets that involve the application of technology and AI tools to analyzing, interpreting and solving human problems.  Some jobs that right now are performed by skilled professionals such as accountants, lawyers and even physicians, can be automated by AI.  On the other hand, asking the right questions and interpreting the answers will be a skill that AI with its tendency to essentially compile and regurgitate what exists or apply set algorithms to data will not be able to perform as effectively as a creative and intelligent human.  This suggests that the teaching roles and administrative functioning of the university are likely to see the biggest changes from AI while the research function can be transformed in more positive ways.

When I think of my own discipline of Economics, I think posing interesting research questions and devising approaches to their solution via theory will remain a human endeavor, but the compilation of facts and rudimentary processing of data will be largely automated by AI. A well-trained economist with a wealth of theoretical and empirical knowledge will be able to harness AI to do creative things whether it is modelling long-term business cycle fluctuations or assessing the full quantitative impact of economic and social variables in economic history. 

On the other hand, AI can do more mundane things like model the economic impact of a construction project or a value of life calculation resulting to a significant drop in the demand for many economic consulting services.  In the long run, this will likely make the economics profession and indeed many others smaller and more elitist in their structure.  Economists will set directions and design the questions and validate the results with much of the menial mental and data grind done by AI.

In the end, universities will not disappear.  They will evolve into on and off ramps on the information highway rather than destinations in and of themselves.  They will also retain valuable social functions in terms of providing a human social environment for the young to learn how to function in this new economy and to develop human relation and networking skills. Faculty will still be required to mentor and guide and set directions but there will be fewer of them.  And, as AI is very good at automating routine things, most university administrations will likely see significant downsizing as human resources, payroll and even basic academic advising and student services can be automated. It will indeed be a new age, but successful universities will seize opportunity, evolve, and persevere rooted as they are in the depths of the past but continuing to the end of the human age.

 

Thunder Bay’s Employment Trends in the Wake of the Lost Decade

 

Thunder Bay even during the trade war has been doing quite well.  Population is up as is total employment in the wake of the pandemic.  While the national unemployment rate in August of 2025 was 7.1 percent and Ontario clocked in at 7.7 percent, Thunder Bay was below both at 5 percent.  Moreover, employment grew from 65,300 in July to 66,400 in August which incidentally is one of the highest the highest monthly total employment amounts in 20 years.  While Thunder Bay has seen ebbs and flows over time, there has been a distinct upward trend in total employment since about 2012 marking the end of what could be termed the early 21^st century lost decade as the forest sector crisis ravaged the local and regional economy.

Figure 1 plots monthly total employment obtained from assorted Statistics Canada series from 1987 to 2025.  It also fits a LOWESS non-parametric smoothing curve to highlight the trends in total employment.  The early years of the first decade of the 21^st century saw total employment in Thunder Bay rise as the recessionary 1990s were left behind and the all-time peak employment of 67,400 jobs reached in July of 2003.  Soon after began the shocks and declines of the forest sector crisis began to accumulate and employment trended downwards until 2012.   

 

 

Thunder Bay’s economy transformed in the aftermath of the forest sector crisis as it moved into knowledge economy jobs as well as saw the expansion of the regional mining sector.   Indeed, despite the ebbs and flows, the period since 2012 is the longest continuous upward trend in employment in this nearly 40-year period. However, despite this good news, total employment in August 2025 still falls short of previous peaks reached in July 2003(67,400), June 2018 (66,200) and April 2023 (67,100). Indeed, Thunder Bay’s best employment performances historically have always oscillated within a band of 65,000 to 68,000 jobs.  This band has never been exceeded and until it is one can argue that Thunder Bay remains strangely constrained in a situation of bounded economic ability.

The other interesting point in all this that I came across while cleaning out files was a 2005 Major Employer List out by the Thunder Bay Community Economic Development Corporation.  Sadly, they no longer seem to have such as list on their web site as I could not locate either the old ones or an updated version.  Nevertheless, the list is compelling documentation of the world that we have lost.  Thunder Bay is intriguing in the sense that over time one is faced with the dual reality that there has been both major economic change and no change whatsoever.

Figure 2 plots the major employers in 2005 ranked from highest to lowest.  Highlighted in red are all the employers that to the best of my knowledge are no longer with us.  In 2005 the list has 55 employers with then largest being the City of Thunder Bay (3,080 employees) and the smallest being DST consulting Engineers and Loch Lomond Ski Resort (both at 100 employees each). Interestingly, the top ten employers on this list are all still with us showing the amazing continuity that is often Thunder Bay despite all the change that has occurred.

 

This list of major employees added up accounts for 29,320 employees with average total monthly employment in Thunder Bay in 2005 at 64,000.  Notable by their absence is any of the grain elevator companies but these had been hollowed out in the 1980s and 1990s and to my knowledge there could not have been more than 300-400 workers left in that sector.  Then there is TBayTel which easily has several hundred employees also, but it is possible that they are under the municipal total. Nevertheless, if you add these jobs too, then this list was essentially the city’s economic high ground with nearly 50 percent of employment.

Since 2005, Thunder Bay’s economy lost several major employers.  Gone are Buchanan Group Northern Wood (550 employees), Cascades Fine Papers Group Thunder Bay Inc. (550 employees), Abitibi Consolidated (down to 400 by 2005 after other closures), Buchanan Group Great West Timber (290 employees), Buchanan Northern Hardwoods (200 employees), Zellers (368 employees), Sears Canada (300 employees) and OPG Generating Station (150 employees)for a total of 2,518 jobs. The last three employers mentioned went later than the forest sector companies with Zellers departing 2013 (it was a national departure), Sears Canada (2018, another national departure) and OPG Generating more recently.

Between 2005 and 2010, average annual monthly total employment went from 64,000 to 59,800 as associated multiplier effects worked in reverse affecting retailers, suppliers and other services.  Thunder Bay itself lost about 5,000 jobs during this period – many high paying resource sector jobs - an upheaval that essentially ended a way of middle-class life for many families.  The fact that Thunder Bay is currently back to 66,400 jobs is a remarkable achievement given that it means that nearly 7,000 jobs have been created since the forest sector crisis low point.  In other words, the 5,000 lost jobs have been made up – in quantity of not always quality – with growth of an additional 2,000 jobs.  This is good news. 

Crucial to the remainder of this decade will be continued growth in Thunder Bay’s economy that boosts employment well above its historic 65,000 to 68,000 glass ceiling.

Is Canada in Recession?

 

Statistics Canada’s most recent GDP growth rate data shows that the second quarter of 2025 exhibited negative GDP growth. As noted, “After recording declines in April and May, real gross domestic product (GDP) edged down 0.1% in June, driven by declines in goods-producing industries in all three months.”  This of course has sparked talk of recession yet again especially given that the unemployment rate is also on its way up.  Of course, there is always some debate over when a recession is underway and what the definition of a recession should be.

The traditional definition of a recession is two consecutive quarters of real GDP growth.  If the third quarter of 2025 is also negative, then by the traditional definition we will be in recession. The main drawback of this measure is that GDP numbers come out with a lag so that by the time the recession is declared it will have been underway for some time.  An alternate real time indicator of recessions has been devised by U.S. economist Claudia Sahm and known as the Sahm Indicator. It was constructed with reference to the U.S. economy and uses the monthly unemployment rate but can be applied to any country’s national level unemployment rate data.

The Sahm Rule Recession Indicator  "signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months."  If one takes monthly seasonally adjusted unemployment rate data for the population aged 15 years and over data for Canada (Source: FRED LRUNTTTTCAM1565) and calculates the three month moving average unemployment rate and the minimum unemployment rate of the previous 12 months and then calculates the indicator (blue line on the figure), by these calculation Canada appears to have moved into recession territory in October of 2024 as the indicator moved above the 0.5 line (red line on figure) that month and has been above since.  

 

 

As the figure shows, since the late 1950s, the indicator has tracked previous Canadian recessions and slowdowns such as those the 1970s, 1980s, 1990s and the Great Recession of 2008-09 well.

Tariff Exposure and Employment Change in Canadian CMAs: A Crisis Averted?

 

Well, we are now nearly six months into regime change in American foreign and trade policy and the subsequent the trade war and it is well worth seeing what the impact of the trade chaos and disruption has been on employment growth in Canadian cities since January.  Early in 2025, there was a highly publicized report by the Canadian Chamber of Commerce that ranked Canadian CMAs by their exposure and vulnerability to tariffs based on the trade component of their economies.  According to the report, the most tariff exposed cities – and likely to face high economic costs as a result – were Saint John, NB followed by Calgary, Windsor, Kitchener-Cambridge-Waterloo and Brantford Ontario.  Also high on the list after these five were Guelph, Saguenay and Hamilton. At the bottom – the least exposed was Sudbury followed by Kamloops, Nanaimo, Winnipeg and Regina. 

So, how has employment growth in these cities fared since January of 2025?  Figure 1 plots ranked data for Canadian CMAs obtained from Statistics Canada and used to calculate the percent growth in employment from January 2025 to July 2025 (using three-month moving average seasonally adjusted data).  A couple of notes. First, Prince Edward Island is included in Figure 1 treating the small island province as a CMA. It is not in subsequent figures. Second, Belleville-Quinte is not included as the employment growth over these six months came out to 90 percent and the official note mentioned there was a small sample issue and to use caution in interpreting – so out it went. There were small sample issues noted for several other CMAs, but they were retained as the percentage changes did not seem as extreme as Belleville. 

 

 

Figure 1 shows that Canada despite the trade war saw some employment growth going from 20,912,00 jobs in January 2025 to 21,019,900 jobs by July 2025 – an increase of half a percent.  Percent growth in employment was greatest in Red Deer (10.4 percent), followed by Hamilton (8.1 percent), Nanaimo (6.3 percent), Saint John New Brunswick (6 percent), Kamloops (5.8 percent) and Sudbury (5.8 percent).  Of these 41 CMAs, well over half – 25 of them – saw their employment grow since January 2025.  The remainder all saw their employment shrink to varying degrees with the worst hit being Windsor (-5.2 percent), Trios-Rivieres (-4.6 percent), Saguenay (-3.9 percent), Kelowna (-3.2 percent) and Kingston (-3 percent). 

 

 

Based on what were projected to be the worst hit cities because of their tariff exposure, it appears that there are some surprising anomalies.  For comparison purposes, Figure 2 plots the CMAs ranked from highest (most exposed) to lowest (least exposed) based on the February 2025 Canadian Chamber of Commerce study and ranking. Saint John, NB was ranked most exposed and yet at 6 percent growth saw the fourth highest gain in employment across Canada’s CMAs.  Calgary was ranked second most exposed but at 1.2 percent employment growth (well above the national performance) ranked 15^th highest in terms of CMA employment performance.  Most interesting of all is Hamilton, Ontario where there has been much gnashing of teeth and wailing about the demise of steel and its impact on the local economy.  Between January 2025 and July 2025, Hamilton went from 421,3000 jobs to 455,600 jobs – an increase of 34,300 jobs or 8.1 percent growth in employment.  Hamilton was ranked 8^th highest in terms of tariff exposure leading to  the expectation it would be nearer the bottom of any CMA employment growth and yet here we are at essentially first place in the country among major cities (because Red Deer’s numbers are also problematic given the small size of the sample apparently).

Now, at the same time, there are some cities where their negative employment growth has matched expectations given their tariff exposure ranking.  Windsor was ranked third highest in terms of tariff exposure and indeed has fared the worst of all the CMAs.  Trois Rivieres and Saguenay also were highly exposed to tariffs and in both cases are also at the bottom in terms of employment growth.  Sudbury, on the other hand was ranked least tariff exposed of all the CMAs and to expectations, its employment growth has been quite good ranking 6^th highest in the country.  

What this all suggests is that the impact of the trade war and tariffs has probably been more complex and variable on Canada’s assorted economies than one might have expected based either on resilience or local responses as well as other activities which may have taken up the slack.  Hamilton, for example, seems rather anomalous but the reality is that it has a large educational and medical sector and has become a major transport and logistics hub both due to cargo through its airport as well as the location of a large new Amazon distribution centre there. 

 

 

 

The relationship between tariff exposure and employment growth across these CMAs is further explored in the two remaining figures.  Figure 3 is a radar plot of ranked CMA employment against the tariff exposure index, and some very large divergences are obvious.  Saint John ranks quite high in terms of employment growth but there is an extremely large tariff exposure spike associated with it.  Calgary also is approximately in the top third of employment growth but also has a rather large tariff exposure spike.  Figure 4 does a scatterplot with trend charting the relationship between employment growth and the tariff exposure index.  Greater tariff exposure is indeed related to lower employment growth on average but there is a lot of variation around the trend.

All in all, some cities have done much better than one might have expected, some have done worse, and some have been bang-on.  The factors accounting for this variable performance are probably as numerous and unique as the performance differences and greatly influenced by local economic conditions and responses.

Charting CMA Population Growth in Canada

 

The news that the Greater Sudbury CMA is poised to reach 200,000 people much sooner rather than later highlights how Canada’s recent population surge has begun to permeate even regions and cities that for years have seen rather lack luster population and economic growth. In the case of Sudbury, the city’s Mayor has made it his goal to grow the city-region’s population to 200,000 by 2050 and given that it is 2025 and population seems to be over 190,000, it is apparent the Mayor may still be in office by the time the goal is reached and thus able to personally celebrat the achievement. 

Meanwhile, Thunder Bay has embarked on a “Smart Growth” Plan that among other things also seeks to attract new residents and population though it has not set a goal for population. Such goals and forecasts are dangerous given that the urban renewal schemes of the 1960s forecast that Thunder Bay (The Lakehead) was going to hit 186,000 people by the 1980s. Yet, even in Thunder Bay, the news is that population growth has been higher than anticipated in recent years with international migration boosting the population of the CMA to over 130,000.

All the optimism for growth in Northern Ontario’s two major urban areas is a cause for celebration given what have been decades of low expectations and performance.  At the same time, one needs to place the recent performance of northern Ontario’s premiere cities into comparative context.  When one looks at the growth of population of Greater Sudbury, and Thunder Bay relative to other Canadian CMAs, the results suggest that even when growth picks up, the lag abides.

 

 

Population data for Canada’s CMAs from Statistics Canada is used to plot several charts to provide some context for the last statement.  Figure 1 plots Canada’s population by ranked CMA in 2001 but by the current number of CMAs which have increased since that year (for example, Red Deer, Drummondville, Nanaimo, Kamloops and Chilliwack were not CMAs in 2001 but have since grown to over 100,000 people). Not surprisingly, Toronto, Montreal and Vancouver were the top three CMAs at 4.9, 3.6 and 2.1 million people respectively. Of the forty CMAs shown in Figure 1, Greater Sudbury ranked 21^st out of 40 with 164,210 people while Thunder Bay ranked 31^st.  Below Thunder Bay were Moncton, Peterborough, Bellville, Kamloops, Lethbridge, Nanaimo, Drummondville, Chilliwack and Red Deer. 

 

 

Fast forward to 2024 and Figure 2. In 2024, Toronto, Montreal and Vancouver were still the three largest CMAs at 7.1, 4.6 and 3.1 million people respectively.  Greater Sudbury, even with nearly 192,000 people, had fallen to 25^th place while Thunder Bay with 133,000 had fallen to 34^th place out of 40.  Figure 3 plots the percent growth in population from 2001 to 2024 for these 40 CMAs and here the evidence shows that population growth was the highest in Calgary, Edmonton, Kelowna, Red Deer and Chilliwack with growth ranging from a high of 82 percent for Calgary to a low of 59 percent for Chilliwack. In terms of growth rates, Greater Sudbury grew 17 percent putting it in 37^th place in terms of population growth while Thunder Bay at 5 percent growth came 39^th out of 40^th.  While second last place in the population growth sweepstakes is better than last – the honour which went to Saguenay – it was not a sterling performance.  

 

 

On the plus side all CMAs saw growth from 2001 to 2024 but in the end it is both growth per se as well as relative growth that matters if you are seeking to promote a growth agenda.  Of course, the key question is why Thunder Bay (and even Sudbury) have continued to do so poorly when it comes to the relative population growth sweepstakes.  Bear in mind that population growth per se is only one indicator of economic performance and the presence of economic opportunity.  Rising per capita incomes and by extension individual economic welfare require the economy to grow faster than population.  Thunder Bay and Greater Sudbury have done somewhat better in terms of per capita income growth.  For example, out of 64 major Ontario communities ranked by CMHC, Thunder Bay and Sudbury rank 41^st and  21^st  respectively in terms of average household income before taxes placing them closer to the middle of the distribution.

Still, despite the celebration of recent population and urban growth, it remains that Greater Sudbury and Thunder Bay are at the bottom in terms of their population growth when it comes to wider comparisons with the rest of Canada. And even worse, Sudbury’s population growth rate since 2001 has been three times that of Thunder Bay at 17 versus 5 percent. Thunder Bay appears to have been particularly afflicted by low overall growth both in terms of its economy and its population and the question is why?  Is it a function of remoteness?  Likely not as many of these CMAs have as many locational disadvantages as Thunder Bay which likes to boast it is in the middle of the country at the confluence of major transport links. Is it the absence of resources or skilled labour?  Again, likely not given its location in the mineral and forest rich shield and the presence of both a community college and university in the community.  

This leads to another factor – institutions, or the arrangements that people have for dealing with one another.  What is it about Thunder Bay in terms of the environment of the community both in terms of local culture and governance that may be militating against growth?  I would argue that it is the absence of competitive behaviour and the prevalence of monopoly that has most stifled the city’s economic growth and development.  In this regard, Thunder Bay is a microcosm of what ails Canada as a whole – a country that has long tolerated monopolies and oligopolies in its economic fabric as manifested in its banking, telecommunication, transport and retail sectors.

In Thunder Bay, this type of non-competitive behaviour that often seeks to block entry of new firms through lengthy approval processes has been compounded by a monopoly municipal government in the wake of amalgamation that has also effectivelt stifled local initiative and innovation (it is no coincidence economic growth in the city dramatically slowed after the merger of the ultra competititve cities of Port Arthur and Fort William in 1970) and a growing reliance on the public sector as the main driver of activity.  If one looks at Thunder Bay, one third of the population essentially works for the public sector and one third is retired or not working and deriving the bulk of its income from some sort of public sector pension.  The remaining third is your private sector and even they are essentially tailoring their businesses to attracting the spending of either the public sector directly via public sector construction projects and contracts or those who derive their incomes from public sector pensions.   With the taxpayer footing the bill in one form or another, there is little incentive for competitive behaviour even in the local private sector and their captive market often results in cost overruns especially on public sector projects.

Needless to say, it is amazing that Thunder Bay's population has grown as much as it has.