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TORONTO (Reuters) - Canadian bankruptcies rose 35.6 percent in July compared to a year earlier, but the surge has begun to slow and business bankruptcies actually fell, the government said in a report that suggests the numbers of those unable to pay their debts may soon peak.
The number of consumer bankruptcies in July rose 38.1 percent to 10,294 from July 2008. While that's a big jump, it is less than the 54.3 percent surge in June.
Business bankruptcies fell 5.3 percent to 432, the Office of the Superintendent of Bankruptcy Canada said in a report.
The improvement signals bankruptcies may be near their cyclical peak, since the economy appears to have begun to recover from the recession, and is expected to improve in the months ahead.
"Bankruptcies tend to lag the cycle a bit, but we are seeing the improvement in labor markets and interest rates are historically low, so I think there is a foundation for further improvements in consumer bankruptcies," said Sal Guatieri, senior economist at BMO Capital Markets.
The drop in business bankruptcies was surprising, Guatieri said, since the effects of the recession are still being felt, but signaled Canadian enterprises were in good shape.
"It suggests Canadian business went into the recession with fairly strong fundamentals, healthy balance sheets and not a lot of debt. So that's very encouraging because it suggests businesses are in decent shape to renew hiring once the economic recovery gets going," Guatieri said.
"If that is the case, we should see consumer bankruptcies continue to moderate in the second half of the year."
Canadian employers added jobs in August, though the unemployment rate rose to an 11-1/2 year high of 8.7 percent, according to a Statistics Canada report released last week.
In contrast to continued job losses in the United States, Canadian employers added 27,100 jobs in August, a gain economists have said suggests Canada's economy had begun to recover.
The drop in business bankruptcies was led by a reduction in insolvencies in the retail trade, agriculture, forestry, fishing and hunting, and transportation and warehousing sectors, the report showed.
Manufacturing bankruptcies continued to surge, however, rising 50 percent, while wholesale trade bankruptcies rose 63.2 percent, according to the report.
Manufacturing, especially Canada's auto sector, has been hard hit in recent months by restructuring at Detroit's Big Three auto companies and the knock-on effect of production cuts across North America.
Editing by Jeffrey Hodgson