Credit cards make Christmas merry for Canadians

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In a Christmas season marked by growing economic malaise around the world, Canadians are defiantly fighting back with the best weapon they have: their credit cards.

The sluggish global recovery from the Great Recession has saddled the country's consumers with stagnant wages, persistently high unemployment and record-high household debt levels – high enough that Bank of Canada Governor Mark Carney has sounded repeated warnings about the risk this debt load poses to the economy. And the weak U.S. economy and ongoing European debt crisis mean the outlook for next year remains unstable.

But in the run-up to Christmas, expectations about what makes an ideal holiday appear to be trumping worries about the bills that will come due in the new year. Retail sales have climbed for three months in a row, with new figures this week showing another surprising jump in October. More recent holiday spending is up 4.6 per cent from 2010, payment processor Moneris Solutions said Thursday, while the Retail Council of Canada estimates holiday sales are 3-per-cent higher this year than last.

Spending is rising even as consumer confidence levels skid to two-year lows. That disconnect may be partly because buying presents in an uncertain economic climate can make people feel more confident, in control and successful, say economists and other experts who study spending habits.

Heading to the mall in search of gifts represents a kind of modern "hunting, gathering and nesting" behaviour, suggests one consumer behaviour researcher at the Richard Ivey School of Business.

"It makes me feel happy," said Halifax nurse Donna Connely, 57, of her Christmas gift-giving. Even though her pay has held steady, she has dug deeper this year, keeping her spending on presents at the same level – about $1,000 – while donating more to charity in recognition of the hardships facing others.

Giving gifts, she says, "is kind of nice to do.… [Christmas]is probably the only time you get together as a family. Really get together."

Allan Dobbs, who drives a mail truck around Vancouver, has seen a wage cut in real terms at his Canada Post job. But the father of two still plans to spend the same as last year, with most of it devoted to his children. "With the kids, we don't go for any big-ticket items. We go for a lot of little things," he said. For the extended family, they hold a secret Santa gift exchange with a maximum limit of about $20.

Racking up steep bills that will come due in a few weeks should be a stressful experience. But for many, "the process of shopping to procure consumption items, especially for our households and families, is very satisfying," said Dante Pirouz, assistant professor at both the Richard Ivey Business School and the Brain and Mind Institute at the University of Western Ontario.

"It is behaviour that makes sense even if we wish we could resist the temptation to spend and exert more self-control when it would benefit us in the long run," Prof. Pirouz said.

While the amount of spending hasn't been dented by the downturn, the way consumers spend may have shifted. The squeeze facing many households may be prompting them to shop more prudently, buy goods at a discount and spend more time planning gifts. "People are reallocating their expenses," said Kenneth Wong, marketing professor at Queen's University's school of business.

For example, to buy presents for their children, "mothers and fathers are giving up date nights as a way of coping."

To be sure, blanket numbers on how the economy and consumers are faring mask deepening divides in the country. From retail spending to job growth, the resource-rich western provinces are charging ahead while Central Canada remains sluggish.

The other splintering relates to incomes. While the high-earning segment of consumers is faring well, propelling sales of luxury goods such as Rolexes and Louis Vuitton bags, cash-strapped mainstream consumers are growing ever more price-conscious, Prof. Wong said.

In Toronto, Paul Thompson, a video technician for feature films, figures he's spent about $1,000 on presents for family this season – about the same as last year.

He's not going on a wild spree, "but I'm not really limiting myself on what I'm buying" either, he said while carrying a bag with a Lego set for his son and a frying pan for a family member.

Canadian debt levels have now surpassed those of the United States and Britain. Credit-card debt was $62.4-billion across the country in October, according to statistics compiled by the Bank of Canada – 9-per-cent higher than the same month last year.

Canadian consumers have helped drive economic growth for years – even through the recent recession. The International Monetary Fund warned Thursday that the Canadian economy is more dependent than ever on domestic spending because of weakness in the U.S. and European economies, and that a decline in the country's frothy housing market could bruise Canadian consumers and deal a severe blow to the economy.

Logic, and a sober look at the bills come January, suggest strong spending will soon taper off, particularly given that weak wage growth is not keeping pace with the rising cost of living, said Bank of Nova Scotia economist Derek Holt

"We've had a great party in the past decade," he said. "But at some point, we know it's going to slow – the only question is when."

With reports from Marina Strauss and Candice So in Toronto, Oliver Moore in Halifax and Ian Bailey in Vancouver

By the numbers

7.4 per cent

Jobless rate in Canada in November, the highest level in five months.

1.4 million

Number of Canadians who are out of work.

151 per cent

Ratio of household credit market debt to personal disposable income, a record high.

$38.6-billion

Value of retail sales in October -- the third month in a row of increases.

2.4

Annual percentage gain in wages, as of last month. Given that the current inflation rate is 2.9 per cent, real wages are actually falling.

69.9

Conference Board of Canada's consumer confidence index reading in December, its lowest level in more than two and a half years.