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Shoppers walk through Sherway Gardens Mall in Toronto on Dec. 17, 2019. The overall picture for spending on all types of goods will become more clear on Friday, when Statistics Canada publishes numbers on retail sales in December.Aaron Vincent Elkaim/The Globe and Mail

In Canada and the United States, stock markets are in high spirits. Sadly, many consumers aren’t. Investors should keep a close eye on this discrepancy.

If households open their wallets, the economy will grow and stocks will thrive. But if consumers pull back, the outlook for many businesses will darken. That would not be good news for stock prices that have been hitting new peaks with metronomic regularity in recent weeks.

Right now, a number of indicators suggest families are retrenching.

In Canada, for instance, car sales have underwhelmed in recent months. Vehicle sales for the fourth quarter of 2019 were the weakest since 2013, according to DesRosiers Automotive Consultants.

The overall picture for spending on all types of goods will become more clear on Friday, when Statistics Canada publishes numbers on retail sales in December. For now, “the guesstimates are for no growth in the dollar value of retail sales,” according to a note from economists at Bank of Nova Scotia.

The Bank of Canada insists that consumption spending is likely to pick up modestly over the course of 2020, but its forecast hinges on a healthy jobs market and continued growth in disposable incomes.

If the economy stumbles because of the global coronavirus outbreak or Canadian rail blockade, the potential for unpleasant surprises is high. Household debt is running at 175.9 per cent of disposable income, just slightly below the record reached in 2017. Meanwhile, consumer confidence hit a 36-month low in December, according to the Conference Board of Canada.

An affordability index compiled by debt-relief specialist BDO Canada estimates 53 per cent of Canadians live paycheque to paycheque. It says debt is “overwhelming” for 25 per cent of households.

The high level of financial stress is evident in a growing number of consumer insolvencies. They hit their highest level since 2010 during the last three months of 2019, according to data from the Office of the Superintendent of Bankruptcy Canada.

In the United States, too, consumers appear to be watching their wallets carefully. Real retail and food service sales, an excellent indicator of the state of the overall economy, grew at a year-over-year rate of just 1.8 per cent in January. That number is distinctly lacklustre. Before 2016, the gauge regularly expanded at a 3-per-cent or higher annual clip.

The weakness is pulling at retailers’ bottom lines. This week Walmart Inc. reported a drop in profit and a marked slowdown in U.S. revenue growth in the three months to the end of January. In Canada, the retailer’s net sales decreased by 0.5 per cent, reflecting what the company said were “softer sales in general merchandise and apparel.”

Other storekeepers are in much worse shape. This week, furniture retailer Pier 1 Imports Inc. filed for bankruptcy protection and Macy’s Inc., the department-store chain, had its credit rating downgraded to junk status by S&P Global Ratings.

To be sure, the pain in stores reflects the growth of online shopping in general and Inc. in particular. But U.S. consumers are also showing a reluctance to spend even in areas where online shopping isn’t dominant.

Car sales, for instance, roared back after the 2008 financial crisis, hitting an annual pace of more than 18 million vehicles during 2015, but have largely stagnated since. Early indications are that roughly 17 million vehicles will be sold this year – about the same number as were sold 20 years ago.

A no-growth auto market is not what most forecasters would have predicted given multidecade lows in unemployment.

Perhaps the U.S. economy isn’t quite as prosperous as it first appears. It’s worth noting, for instance, that while unemployment has slid to its lowest level since the 1970s, the share of the population who are actually working is still well below the level it hit before the financial crisis.

The discrepancy reflects the number of people who have dropped out of the labour force. They are no longer counted in calculations of the unemployment rate, but are still without a job nevertheless.

However you view the evidence, consumer spending bears watching, both in the United States and Canada. Further stock market gains require healthy growth in household consumption. For now, that remains in doubt.