...against fictions and other tall tales

Tuesday, 13 September 2011

Canadian household debt-to-GDP reaches record high

Canada's National Balance Sheet Accounts for 2011 Q2 were released today. Here is a good summary, courtesy of Statistics Canada.

For my part, the most important piece of information that I retain from these accounts is that Canada's personal debt-to-GDP has reached a new record high of 94.08 percent.

Another interesting development is that real estate as a percentage of personal disposable income has jumped to 296.37 percent, the second highest level on record. For those who see trouble ahead in Canada's economy and, more specifically, its real estate market, such figures are not encouraging.

One thing is for sure, there's nothing in these accounts to reassure federal policymakers who, since the fall of 2010, have been raising concerns about Canada's increasing household indebtedness levels.


  1. Great showpiece Circuit. Significant certainly. The one that I'm sensitive to, and am expecting term response asap is the increase in Corporate debt to equity. Equities are not going anywhere in the near term. If you want organizations to 'stay' or 'hold' the course, someone has to finance the working capital. Make it cheaper.
    BoC has seen this phenomenon on many previous occasions. The normal response is to anticipate rate adjustments. Mr. Carney will use the household debt pretext to accommodate both sectors.
    Maybe 'within six months' is too far out. Maybe we're looking at 3-4 mths into a slide. Not a merry christmas for many. I don't envy Mr. Carney. His last interventions have been of high rhetoric. (nod to Carney!)

  2. Keep highlighting the stats, circuit. It's a great column. Parliament is back next week. Our elected need ideas, as do their pundits. I agree with JH (nod) on the corporate debt ratio. Times are squeezing working capital. Mr. Carney is not to be envied!
    Disturbing is the Owners' equity as % of real estate- usually indicates weaker consumption. It's falling quickly.

  3. Great comments guys. I'll keep publishing the stats. Thks for the additional insight.
    @JH: Not many things are worse than a less than merry christmas.
    @Swells: It should be interesting now that the social dems are Opposition. Perhaps we'll get some lively debates on economics (maybe even on MP).

  4. Nod to circuit again.
    The additional feature on Cdn econ. results is an optimal addition.

    My watch is on housing prices. They have been falling across the board. So when you put swells, jh and lower housing prices together in a combined matrix (lower owner's equity ratio to falling household real estate) , you generate a remarkable recessionary environment, coming on at squall speeds.

    Generally, I agree with both northern 'confreres'. Although I sense an overdose of pessimism in both jh and swells, there is a silver lining on the horizon for Canada if some commodity prices like oil hold and range at these levels. It won't help regional unemployment but it may the offset the national average. This will tend to make political tensions between regions more difficult to mitigate. It will also complicate a uniform fiscal policy in Ottawa but, on the other hand, the demand for jobs in the oil-producing regions and related thereabouts, and lower housing prices, will attract permanent inter-provincial worker migration and help alleviate pressure on some provinces of origin. Moreover, as the long dates come off, construction may pickup, but I presume that will not be for a while. Demographics suggest that my younger generation, baby-boomers, will probably sell home assets and condo-size their lives. Heaven knows how those gidgets have multiplied. So single residentials isn't in my field of vision, and unless Canada's immigration performance is exceptional, you can only have so many gidget-developments.

    The level of Corporate debt singled out by jh is in fact annoying. On the other hand, as short dates come off, so should the C$ and that can only come as a balm to your manufacturing sector and inspire some creative export pricing. Again, foreign demand is not rosy for Canadian manufactured goods, but domestic demand can offset the loss of export markets by keeping margins low. The lower cost of capital, as both jh and swells suggest, as well as some creative cost management, should compensate the cost inefficiency of carrying working capital. Unfortunately, many entrepreneurs, would rather unload working capital and payrolls than 'stay' the course waiting for signals that aggregate demand from eme's is only slumbering and has not structurally changed. I doubt that is the case. Brazil, so early, is already showing signs of great economic stress among the BRIC sovereigns. Mr. Tombini has again lowered his benchmarks, and forecasts on growth are being revised downwards. Given the opacity of global growth, what can one infer about the others.

    Mr. Carney seems to be a very prudent Central Banker. For a while, I considered him too prudent; but then maybe, he was just wiser than most. Recently, he has become what one always wished for-an outspoken critic of economic realities. He certainly eyes the press down: In Remembrance of Things Past. He may just become the best Canada has had.

    Maybe someone will author a period text:
    The Fall and Rise of Central Banks:
    'Glory Days'(nod BS) of Central Bankers: 2007-2014
    I dared put an end-date.

    One must envy the Canadian electorate for having chosen a majority government. Although the promise of a balanced budget and deficit control were key platform issues, I consider that Mr. Harper has the political insight and leeway to spend where and when necessary, now imminent, trusting that the oil price doesn't droop (not drop) substantially. Also, I surmise that with Mr. Layton no longer in Parliament, the fount of opposition ideas will be limited.

    I'm somewhat early to comment, but I'm leaving on an extended holiday. I'll try keeping in touch, but the internet is not always available in that coordinate. Stay the course, circuit, hold the helm. Have I got that correctly, swells. (lol)

  5. Early, early for me too. IT's better than I ever expected from a pilot, jorge. (lol)

  6. Thanks Jorge. Your views on this are much appreciated. I hope the silver lining you've identified materializes. I gather this will depend on continued growth in emerging markets. However, as you point out, some of these, including the BRIC, are facing difficulties at present. Indeed, the actions of the BoC will be critical. Of course, I agree with you that additional fiscal stimulus would alleviate the upcoming challenges. The balanced budget promise of the party in power is an obstacle. We'll have to see if the majority government helps in this regard. It appears that the opposition parties have taken a relaxed stance with respect to the need implement cuts. The focus is now shifting to the upcoming economic problems. The Libs' new focus on jobs (see Rae speech) combined with the NDP's traditional position of increasing public investments might make it easier for the Tories to set aside that campaign promise. The book on this period will indeed be interesting. Perhaps, it may even become a 'how to' for future practitioners. Who knows?

  7. Oh, I forgot: Yes, I have control. Isn't that what pilots say? (lol)

  8. The comments are excellent because they highlight indicators that are not very popular. The (nod) jh, swells & Jorge comments, considered in the context of falling real estate prices, concluding on a weakening in aggregate demand- are a very pre-recessionary signal.

    Underlying, one assumes, is the quick fix that since asset prices are falling quicker than real estate values then households will have a tendency to borrow less, and probably spend less-hence save more, hence weaker consumption (nod swells)

    (nod circuit!!)Unfortunately, the problem is Canada still has one of the highest household debt/income ratios in the world, and lowest household saving ratios since the '30's, as Circuit has been pointing out since June 2011, notwithstanding the slowdown in the growth of household debt.

    That entails a tailspin for manufacturing and worse for the service sector.

    The comments on the manufacturing sector are highly critical. I agree that the last few years have witnessed a reversal in social responsibility. The new credo seems to be that what is good for a company is good for society. So 'fire away' you can't expect firms to pay for someone's, including the citizen, out-of-control-debt.

    The comments on working capital and monetary policy are right, as is the case that BoC will be accommodating business. On the other hand, when Mr. Carney considers the situation of households, he may be somewhat reluctant to loosen immediately. The balancing act is tricky, and Canadians seem to be out-of-control-spenders. Messy for the country.

    I have to concur that I considered Mr. Carney a bit conservative for the times, but maybe Jorge is correct. He may just be that much wiser than all of us. Hopefully, the GoC and BoC don't hold on to the purse strings too long. Really interesting post.