interest - rate - sensitive areas, but higher borrowing costs are starting to affect spending more broadly as well. consumption growth looks to have weakened substantially in the second half of 2022 ( chart 3 ). some of this slowdown reflects the waning boost from the reopening, but higher interest rates have contributed. chart 3 : consumption is easing amid higher rates goods and services consumption, growth over 2022h1 and 2022h2, annualized data % - 3 goods consumption services consumption, including npish 2022h1 2022h2 note : 2022q4 is forecast. npish means non - profit institution serving households. sources : statistics canada and bank of canada calculations and projections last data plotted : 2022q4 demand and supply with demand slowing, we are seeing early signs that demand and supply are becoming less out of balance in our overheated economy. the output gap provides an overall measure of the balance between demand and supply. through 2021, the economy recovered rapidly — the fastest recovery on record — and supply disruptions continued. as a result, the economy moved into excess demand in 2022, putting upward pressure on prices here in canada. but excess demand appears to have peaked and is beginning to ease ( chart 4 ). chart 4 : the economy remains in excess demand output gap, january 2023 bank of canada monetary policy report - 2 - 4 - 6 - 8 sources : statistics canada and bank of canada calculations last data plotted : 2022q4 this picture of excess demand in the economy is reflected in a wide range of labour market indicators. the unemployment rate is near historical lows, businesses continue to report widespread labour shortages, and the job vacancy rate is elevated. 2 labour markets were already tight before the pandemic, but now the unemployment rates for prime - age, young and older workers are all lower than they were before the pandemic. the unemployment rate today is also lower in every province than it was pre - pandemic. quebec and british columbia have the lowest unemployment rates of all. the tightness in the labour market looks to have peaked around the middle of 2022 and has eased modestly. job vacancies have declined from that peak, and the share of firms facing labour shortages has edged down. moreover, job growth has been slowing more in interest - rate - sensitive sectors like construction, and this has contributed to a slowing in overall employment growth ( chart 5 ). chart 5 : employment growth has eased in sectors

to 5. 1 % over the same period. the prime rate, which is a benchmark for business loans, rose from 2. 5 % to 6. 5 %, and longer - term corporate borrowing rates are up about 2 percentage points. chart 1 : borrowing costs have risen % policy rate five - year variable mortgage rate long - term corporate borrowing rates january 2022 january 2023 note : values are monthly averages. long - term corporate borrowing rates reflect rates on investment - grade corporate bonds. sources : bloomberg finance l. p., lender spotlight and bank of canada last observation : january 2023 changes to our policy rate have also affected the exchange rate. but the exchange rate channel has been more muted than usual. because the us federal reserve was also raising rates rapidly through 2022, the canadian dollar did not appreciate against the us dollar. it did rise initially against other currencies — like the euro — until these jurisdictions also began forcefully raising their policy rates. this fight against inflation is a global one — we ’ re not fighting it alone. 1 after 11 months of policy rate increases, we ’ re seeing signs that higher interest rates are beginning to rebalance the economy. household spending has moderated, particularly in interest - rate - sensitive sectors. the labour market remains tight, but early signs of easing are evident. inflation has declined, and our surveys of inflation expectations suggest more businesses are convinced that inflation will recede. let me talk about each of these impacts in turn. interest - sensitive spending the first place we saw the effects of rate increases was in housing activity. when we began raising rates, canadians with variable interest rate mortgages and 1 b. hofmann, a. mehrotra and d. sandri, “ global exchange rate adjustments : drivers, impacts and policy implications, ” bank for international settlements bulletin no. 62 ( november 2022 ). those looking for a new mortgage felt it first. nearly a year later, people renewing their home loans are also facing higher interest costs. demand for mortgages has fallen, and housing activity has weakened sharply from unsustainably high levels ( chart 2 ). chart 2 : housing activity has weakened ratio of sales to new listings, seasonally adjusted, monthly data % source : canadian real estate association last observation : december 2022 higher interest rates have also affected spending on big - ticket items that people often buy on credit, such as furniture and appliances. you can really see the decline in consumption in these