Is Canada Next?
“All of that negative news has kind of put a downer on consumer sentiment,” is how Jharonne Martis, director of consumer research at Thomson Reuters, explained the crummy consumer confidence reading on Friday.
The Thomson Reuters/Ipsos Canada Primary Consumer Sentiment Index haddropped to 51.6, the lowest so far this year and well below the 56.4 of last August before the oil-price crash soured the mood. By comparison, since 2010, the index has mostly been in the mid-50 range.
The “negative news” has extended beyond the price of oil. She pointed at some well-known retailer chains that have shut their stores in Canada recently, including Target, Future Shop, and photography retailer Black’s.
Already on March 30, Bank of Canada governor Stephen Poloz had warned that economic growth would be “atrocious” in the first quarter “because the oil shock is a big deal for us.” And he was right, with GDP dropping 0.6% annualized, the first quarterly decline since 2011.
It didn’t help that the Bank of Canada, in its Financial System Review released on Friday, pointed out that household indebtedness and the housing bubble were the top two vulnerabilities that threatened Canada’s financial stability. The top vulnerability:
“Elevated” – actually dizzying – “level of household indebtedness”:
The vulnerability associated with household indebtedness remains important and is edging higher, owing to an increase in the level of household debt and the ongoing negative impact on incomes from the sharp decline in oil prices. In addition, the quality of household debt may be decreasing at the margin….
Household leverage has been pushing relentlessly higher. In the first quarter,according to Statistics Canada, the household-debt-to-disposable-income ratio edged down a smidgen for the first time in four quarters, from its all-time high, to 163.3%. Debt increased once again, but this time slightly less than income.
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