Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

Heavier debt loads and a slowdown in income growth will cause the pace of Canadian consumer spending to soften over the next year, a bank report said Thursday.

The recent rise in consumer spending, which helped fuel fourth-quarter economic growth, has come at the same time households' actual ability to spend is weakening. That suggests the pickup in spending will be short-lived, Canadian Imperial Bank of Commerce economist Benjamin Tal said.

He believes consumer spending will "disappoint" over the next year.

Story continues below advertisement

"While improved sentiment can provide a short-term lift to household spending, a sustainable boost in activity must eventually be backed up by improving consumer fundamentals such as income growth, falling unemployment and reduced debt burdens," he said.









Consumer sentiment surveys tend to be subjective, so he has developed a new measure called the consumer capability index which uses seven factors to track household fundamentals. These factors measures include debt-to-income ratios, real income growth, the long-term jobless rate and personal bankruptcies, and compare current levels to long-term averages.

Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:2d13dc33-9921-4d4a-815f-e809277631e4





It shows growth in real disposable income has been declining over the past year, and "to a certain extent, debt is replacing income as a major driver of consumer purchases."

As of February, household credit was up by more than 7 per cent from a year earlier - more than three times faster than income growth.

The debt-to-income ratio, as a result, hit a record 147 per cent in December, and is accelerating at the fastest rate since the mid 1990s, Mr. Tal said.

Household debt is also climbing faster than assets, he added.

Story continues below advertisement

Some measures are improving - the savings rate is climbing and personal bankruptcies, though historically high, are slowing.

But by his combined measure, Canadian consumer fundamentals are at their weakest level in almost 15 years.

"The practical implication of the reduced consumer capability as measured by our index is that consumer spending will disappoint in the coming twelve months," he noted in the report entitled "Canadian consumers - more confident but less capable."

As interest rates are poised to rise this summer, and that will have a heavy impact on shoppers, he added.

"Given the vulnerable starting point of the consumer, the Bank of Canada will soon find that even a moderate monetary squeeze will be sufficient to drive a material deceleration in consumer spending."

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies