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Canadian households are racking up more debt, poll suggests
Average Canadian household owes $92,699, BMO poll suggests
A new poll suggests Canadian households are piling on more debt and plan to borrow more in the short term, even though a slight rise in interest rates would “stress” most of them out.
In BMO’s Annual Debt Report, the average household debt of those surveyed is $92,699, more than $4,000 higher than the four-year average dating back to 2012. And servicing that debt, which includes mortgages, lines of credit and credit card debt, is costing $1,165 a month.
Nearly half (46 per cent) feel some stress about those figures, but they’re still not as stressed as those surveyed in the past two previous years, suggesting many don’t anticipate a rise in interest rates.
Two-thirds admit, though, they would feel stressed if interest rates rose by two percentage points.
“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” said Sal Guatieri, senior economist of BMO Capital Markets. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”
Canadians carrying debt will be watching the Bank of Canada’s next interest rate announcement July 15. Economists remain split over whether the Bank will hold or cut rates. A rate hike appears off the table — for now.
Statistics Canada says the debt-to-income ratio of Canadian households stands at 163.3 per cent. That means for every dollar Canadians earn, they owe $1.63 in debt, which is just barely lower than the record level measured last year.
BMO’s new poll finds many Canadians — 46 per cent in this case — are optimistic they can still have all of their debt paid off in less than five years.
The survey was conducted by Pollara and is based on interviews with an online sample of 1,001 Canadians conducted between June 19 and June 22.
Canada’s economy isn’t in recession, despite report, Joe Oliver says
Private sector economists warn of possibility of recession this year
Despite an economy that’s shrunk every month for which we have data this year, the federal finance minister says Canada is not in a recession and is poised for growth later in 2015.
At an event in Toronto on Friday, Finance Minister Joe Oliver told reporters that the economy will avoid recession this year, despite newdata from Statistics Canada earlier this week that shows GDP has contracted in each of the first four months of the year — two-thirds of the way toward the technical definition of a recession.
“First off, we’re not in a recession,” Oliver was quoted by Bloomberg as saying. “We don’t believe we will be in a recession.”
Technically, economists define a recession as two consecutive quarters with negative GDP growth. Oliver said it’s too early to say the country is in a recession because we don’t have economic data for the entire January to June period.
“We expect solid growth for the year, following a weak first quarter.”
Economic slowdown
Finance Minister Joe Oliver’s April budget projected an economy that would grow by about two per cent this year. (Darren Calabrese/Canadian Press)
April’s federal budget assumed an economy that would grow by about two per cent this year. So far, the numbers show the economy shrank by 0.6 per cent in the first three months of the year, and another 0.1 per cent in April.
The Finance Department’s optimism is far from a universal view. Bank of America economist Emanuella Enenajor raised eyebrows with a report on Thursday, in which she said the GDP report for April, which showed the economy shrank by 0.1 per cent, caused her to revise her expectations downward for the entire April to June quarter.
That would be enough to bring a dirty economic word into the discussion: recession.
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Seniors going bankrupt in soaring numbers
More Canadians are outliving their savings and spending their golden years in debt
Judy Southon never imagined it would come to this. She and her husband Vic had good jobs, raised a son and were homeowners. But after a run of bad luck, the 67-year-old wound up deep in debt and had to declare bankruptcy.
“I was scared and shocked,” says Southon, who lives in Toronto.
The golden years have become a tarnished chapter for some. Seniors are carrying more debt into retirement and, as a result, a growing number are going bankrupt.
According to the federal Office of the Superintendent of Bankruptcy, 10 per cent of those who declared bankruptcy in 2014 were aged 65 and older. That’s a whopping 20.5 per cent increase from 2010.
Spend savings, pile on debt
One of the reasons is actually a plus — we’re living longer. “For many of us, we’re outliving our savings,” explains Nora Spinks with the Vanier Institute of the Family, a non-profit research organization.
Another driving force is that more seniors are retiring in the red.According to Statistics Canada‘s most recent numbers, in 2012, 42.5 per cent of people aged 65 and over still had debt. That’s a stunning increase of 55 per cent since 1999.
Bankruptcy trustee Doug Hoyes blames the lingering debt largely on our addiction to low interest loans.
“If you’ve got decent credit, you can go out and get a mortgage for 2.5 per cent. So why not be buying the bigger house?” he says. “Today we don’t need to save because we all have a line of credit.”
- The lust for home equity lines of credit: should we worry?
- Real estate woes: The secret lives of house-poor Canadians
But paying down debt in your senior years can be challenging on a fixed income. Throw in an unplanned setback like a financially needy adult child or a family illness and the bills can become crushing.
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2-income families nearly doubled from 1976 to 2014
As Canadian families change, number of stay-at-home parents plunges, but more of them are dads
Families with both parents working are a substantial majority in Canada, with 69 per cent of couples with a child under 16 years of age having two incomes, according to Statistics Canada.
That contrasts sharply with 36 per cent of couples with a child under 16 having two working parents in 1976 and represents a 92 per cent increase.
In Quebec, the proportion of families with a stay-at-home parent declined faster than anywhere in the country, from 59 per cent of families in 1976 to 13 per cent in 2014.
The Statistics Canada study based on data from the Labour Force Survey shows the changes undergone by Canadian families in the past 38 years.
The survey gathered data on 2.8 million families in both 2014 and 1976, as the number of Canadian families with children remained constant.
Living on 1 income
The influx of women into the workforce in the 1970s and 1980s is credited with boosting the prosperity of middle-class households.
However, it is also true that few Canadian families can afford to live on one income as many did in 1976.
That makes the cost of daycare a perennial issue for many families and means legislation such as the income-splitting tax break pushed through earlier this year may be tailored for the kind of Canadian family that is no longer in the majority.
The share of couple families with children who had only a single earner declined from 59 per cent in 1976 to 27 per cent in 2014. That means about 736,000 couples across Canada, according to Statistics Canada.
But in 2014, it was far more likely that a stay-at-home parent was the father than in 1976. About 11 per cent of families with a stay-at-home parent said it was dad who was home with kids, compared to two per cent in 1976.
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Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis
Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis
It’s also happening in the US, but it’s much worse in Canada.
In the US, May industrial production dropped “unexpectedly,” as it was roundly called on Monday, by 0.2%, according to the Federal Reserve. The index value has now dropped from month to month since December, except in March when it was unchanged. The Empire State Manufacturing Survey, also released on Monday, confirmed this sort of scenario, ending up in the negative (-2.0) for the second time in three months.
But in Canada, manufacturing is getting hit hard – and not just because of the oil bust, though it plays a big role. Originally the hope was that a lower Canadian dollar would boost manufacturing through increased exports. The loonie dropped 17% against the US dollar from January 2014 through mid-March 2015, though it has ticked up a smidgen since. But the theory didn’t work out.
Manufacturing sales fell 2.1% to C$49.8 billion in April, seasonally and inflation adjusted, Statistics Canada reported today. The index can be jumpy from month to month. For example, sales of food dropped 5.7% in April, the largest monthly drop since August 2013, after rising 3.4% in March. But the problem isn’t limited to one month. Sales are now down 7.3% from July 2014, the largest and steepest such decline since the Financial Crisis. This is what this trend looks like:
The biggest culprits in April were food (-5.7%), aerospace products and parts (-17.8%), petroleum and coal products (-2.7%), motor vehicles (-2.5%), and machinery (-2.7%). Of note, sales of machinery for the mining and oil & gas sectors plunged 30% year over year.
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Oil-price drop impact on Canada lessened thanks to foreign ownership
Finance department memo says foreign ownership of energy sector higher than reported by StatsCan
Canada has been partly insulated from the sharp drop in oil prices because so much of the energy sector is foreign owned, says an internal Finance Canada document.
The Feb. 20 memo says up to half of Canada’s oil and gas sector is owned by foreign investors, higher than reported by Statistics Canada using different calculations.
- Analysis: Job figures show oil-price drop hasn’t sunk employment
- Oil price drop creates winners and losers
“As a result, the potential negative wealth effects of lower oil prices on consumption may be considerably less than might appear,” says the memo for deputy minister Paul Rochon.
Statistics Canada reported in December that about 37 per cent of Canada’s oil and gas extraction sector was under foreign control in 2012, or about $206 billion of the $563 billion total. But the agency uses a method that ignores who owns shares in widely held Canadian energy companies.
Up to half in foreign hands
By estimating the number of foreign stockholders, and adding them to foreign owned or controlled firms, Finance Canada economists suggest that between 40 per cent and 50 per cent of the energy sector is in non-Canadian hands.
NDP finance critic Nathan Cullen says high foreign ownership levels help explain why so little value-added activity is done in Canada’s oil patch. (Adrian Wyld/Canadian Press)
“A significant amount of foreign capital was brought into Canada to expand oil and gas production,” says the document. “These foreign investors benefited as energy prices increased, but are sharing capital losses with Canadians as prices fall.”
A copy of the memo, with a key section blacked out, was obtained by CBC News under the Access to Information Act.
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Household Debt Soars in Canada, “Stability” at Risk
Household Debt Soars in Canada, “Stability” at Risk
Debt by Canadian households is a special phenomenon. Statistics Canada reported today that in the fourth quarter, household debt set another breath-taking record.
Earlier this month, even Equifax Canada, which is in the business of facilitating and increasing this indebtedness, had warned about it. The total indebtedness of Canadian households, according to its own measure, had jumped 7.7% from prior year, which had already been at record levels. The biggest culprits were installment and auto loans. Households are powering consumer spending, and thus the overall economy, with ever larger amounts of ultimately unsustainable debt.
A “a cautionary tale,” the report called it.
The rapid decline in oil prices caught many by surprise. And, that’s the point – consumers and business owners need to be more vigilant. When economic change happens, it can happen very quickly and can challenge previously observed stability of key economic and credit indicators.
In other words, as the price of oil collapsed, as housing stumbled, and as layoffs began – the “economic change” that “can happen very quickly” – the “stability” of different aspects of the economy, including household debt, is suddenly at risk. It’s a warning that consumers might buckle under that mountain of debt.
Now Statistics Canada weighed in. In Q4, household borrowing, on a seasonally adjusted basis, jumped by C$22.6 billion from the third quarter. Credit cards and auto loans accounted “for the majority of the overall increase.” Total household debt (consumer credit, mortgage, and non-mortgage loans) rose 1.1% from the prior quarter to C$1.825 trillion, with consumer credit hitting $519 billion and mortgage debt C$1.184 trillion.
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Money Is Bailing Out of Canada
Money Is Bailing Out of Canada
The floodgates opened in December. Perhaps it had something to do with oil, Canada’s number one export product, whose price went into free-fall in November and triggered extensive bloodletting in the Canadian oil patch. Or perhaps foreign investors got spooked by something else.
Until then, they’d been sanguine: from January through November, they’d added C$72.5 billion in Canadian securities to their holdings. But in December, they suddenly dumped C$13.5 billion – the most in 18 months.
That included C$8.5 billion in Canadian government and corporate bonds, according toStatistics Canada, which defines bonds as debt with an original term to maturity of more than one year. This wholesale dumping of bonds was partially offset by an increase of C$2 billion in money market instruments. They went looking for the safety of short maturities.
And as Canadian stocks fell a barely perceptible 0.8% in December, these frazzled foreign investors who’d splurged on Canadian equities from January through November by adding another $32.3 billion to their holdings, suddenly dumped C$7.0 billion of their shares, the most since February 2013.
But it wasn’t just foreign investors who got frazzled in December. Canadians too ran scared and sent C$13.9 billion of their hard-earned money across the border – the most since December 2000!
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Don’t Believe The Headlines: Canada’s Latest Job Numbers Don’t Look Good
Don’t Believe The Headlines: Canada’s Latest Job Numbers Don’t Look Good
After two months of shrinking job numbers, it looked like Canada had broken the streak with this morning’s StasCan report showing an increase of 35,400 jobs, and a decrease in the jobless rate to 6.6 per cent, from 6.7 per cent.
But that is just about the sunniest number there is in this jobs report. Dig a little beneath the surface, and what you find is a struggling job market.
First and most importantly, all of the net increase in jobs was accounted for by an increase in “self-employed” individuals, of 41,000.
Many economists are suspicious of this category, because “self-employed” does not equal “making money.” It could be that more than 40,000 Canadians found their entrepreneurial spirit last month and launched their own startups, but it’s just as likely many are putting a brave face on their unemployment.
The number of salaried jobs actually fell by 5,400 from a month earlier, and the number of full-time jobs of any kind fell by 11,800. That was offset by an increase of part-time jobs of 47,000.
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Canadian manufacturing sales drop again in November
Canadian manufacturing sales drop again in November
OTTAWA (Reuters) – Canadian manufacturing sales decreased by 1.4 percent in November, the third decline in four months, driven by a sharp drop in motor vehicle sales, Statistics Canada reported on Tuesday.
The decline was greater than the 0.7 percent decrease that analysts surveyed by Reuters had anticipated. It represented the second monthly decline in a row, following a 1.1 percent decrease in sales in October. The agency also revised its October numbers down from a previously reported 0.6 percent decline.
Overall, sales declined in 16 of 21 industries in November, representing over 80 percent of the country’s total manufacturing. But the agency said total year-to-date sales were still 5.2 percent higher than in the first 11 months of 2013.
The federal statistical agency said the latest monthly drop was due to lower sales of motor vehicles, which dropped 5.9 percent. Chemical manufacturers saw a 3.6 percent decrease, while primary metals and food also fell.
The monthly drop for November was the biggest since a 3.5 percent decrease in August 2014. It was also the first time since March and April 2013 that Canadian manufacturing sales declined for two months in a row.
Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too
Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too
OTTAWA – Canada had a larger-than-expected trade deficit in November as a drop in crude oil and bitumen led a broad decline in exports.
Statistics Canada said Wednesday that the country posted a merchandise trade deficit of $644 million in November compared with a deficit of $300 million that had been expected by economists, according to Thomson Reuters.
The federal agency also revised its results for October to show a deficit of $327 million, compared with an initial reading of a $99-million surplus.
BMO Capital Markets senior economist Benjamin Reitzes called the November report “bleak, with negatives almost across the board.”
“While trade performed solidly in 2014 as a whole, it’s not ending the year in particularly good shape,” Reitzes wrote in a note to clients.
“And, the trade deficit is likely to worsen materially due to the steep drop in energy prices, suggesting it will be some time before we see another surplus.”
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Canada’s GDP Stronger Than Expected In October .. Before Oil Prices Collapsed
Canada’s GDP Stronger Than Expected In October .. Before Oil Prices Collapsed.
OTTAWA — Canada’s gross domestic product rose by an unexpectedly strong 0.3 per cent in October, which led several economists to consider revising their estimates for the final quarter of 2014 — although they also warned that they’re less bullish about 2015 due to a drop in commodity prices, especially for oil.
Statistics Canada’s monthly GDP report showed that October’s growth was broad-based, affecting several major sectors of the economy — especially oil and gas extraction, mining and manufacturing. That was partly offset by weakness in agriculture and forestry sector and utilities.
Economists had estimated the Canadian economy would grow by 0.1 per cent during the month, following September’s growth of 0.4 per cent.
CIBC economist Avery Shenfeld wrote that a 0.7 per cent gain in manufacturing was an unexpected contributor and suggested that Canada’s economic growth in the final quarter of 2014 could be better than expected.
“While we don’t see the resource strength lasting into the new year, for now, there’s room for the economy to eclipse our 2.5 per cent Q4 forecast,” Shenfeld wrote in a brief note.
Household Debt In Canada Hits Record 162.6% Of Income After StatsCan Revisions
Household Debt In Canada Hits Record 162.6% Of Income After StatsCan Revisions
Canadian household debt reached an all-time high in the third quarter of 2014,Reuters reports.
Average household debt reached 162.6 per cent of average household disposable income in the quarter. Statistics Canada revised its estimates for the previous three years downward, so the new numbers are lower than figures previously reported.
The number for the previous quarter — 163.6 per cent — was revised to 161.7 per cent. That makes the new number for the third quarter the highest debt ratio yet.
StatsCan said it made the revisions because it had initially overvalued mortgages.
The Canadian Press reports:
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