Canada’s household debt stable, but overall outlook still dim

If you're worried about Canada's household debt burden, the latest figures from Statistics Canada won't do much to soothe your furrowed brow.

Statistics Canada's quarterly National Balance Sheet and Financial Flow Accounts report – which covers the financial state of the country on a household, corporate and government level – showed that the closely watched household credit-market-debt-to-disposable-income ratio ticked down ever so slightly in the first quarter, to 163.3 per cent from a record 163.6 per cent in the fourth quarter.

The trouble is, the fourth-quarter number was revised up from an originally reported 163.3 per cent. So, essentially, the household debt burden is sitting precisely at what we had thought was the high-water mark.

Still, it was (sort of) an improvement, which is better than heading in the other direction, as many people feared might happen as the brunt of the oil shock hit in the first quarter. And in the column of positives, household net worth rose another 3.4 per cent in the quarter, which in theory gives Canadians more financial wherewithal to carry their debts.

Dissecting the nation's balance sheet data, a few details stand out:

Slower debt growth in the first quarter, but that's just business as usual

Total household debt in the quarter grew by a relatively tame 0.7 per cent over the fourth quarter – the slowest in a year, and below the pace of disposable income growth. That's a good recipe for shrinking the near-record debt-to-disposable-income ratio. And given that the slowdown came in a quarter of lower interest rates following the Bank of Canada's surprise rate cut in January, the subdued debt growth looks like an encouraging sign.

Still, let's not get too excited when we see this happening in the first quarter of a year. Historically, the first quarter is simply a slow season for household debt.

In the 25 years of data that Statscan keeps on this, going back to 1990, first-quarter household debt growth has slowed from the fourth-quarter pace in every year but two. Consumer credit (car loans, credit cards, lines of credit and the like) in the first quarter has outright declined in five of the past six years. Similarly, the pace of mortgage growth has only risen quarter-to-quarter three times in the past 25 years.

On a year-over-year basis, growth of both mortgages and consumer credit are in the lower end of their 25-year range, which is relatively good news. Still, year-over-year mortgage growth has been creeping up over the past year, and is at its highest level since the end of 2012. The year-to-year pace of consumer credit growth was at its highest since the end of 2013.

At the same time, year-over-year disposable income growth has stagnated at levels well below what we experienced in 2011 through 2013, and the quarter-to-quarter numbers don't suggest we're seeing much of a pickup. With income growth still weak and debt growth moving out of a seasonal lull, the ingredients for reduced debt-to-income readings don't look to be in place.

Corporate cash mountain gets bigger

Private non-financial corporations had cash holdings totalling a record $686-billion at the end of the first quarter. After declining slightly in the fourth quarter – their first decline in the fourth quarter – the corporate cash pile grew by 4.1 per cent in the first quarter.

It's not a big surprise that companies were stockpiling cash again in the quarter, given the economic uncertainty. And with energy companies facing sharply reduced inflows of cash this year, even their deep cuts to spending are unlikely to keep the national corporate cash holdings from being depleted somewhat over the next several quarters. Still, the rising cash levels are a fresh reminder that Corporate Canada remains hesitant to invest its ample cash, and that sluggish investment landscape continues to keep a lid on economic growth.

Provinces surpass Ottawa on debt load

Years of deficit fighting and belt tightening have paid off for the federal government. Its net debt-to-gross-domestic-product ratio – the key measure for government debt loads – sat at 31.3 per cent in the first quarter, up ever so slightly from the fourth quarter, but a dramatic improvement from nearly 70 per cent in the mid-1990s and nearly 40 per cent in the mid-2000s.

But the provinces, and the municipalities under their umbrellas, have been going in the opposite direction.

For the first time ever, provincial and municipal debt-to-GDP has crossed over to exceed the federal level – 31.7 per cent as of the first quarter.

That's nearly double the prerecession levels, reflecting the spike in deficit spending through the financial crisis and Great Recession.

But disturbingly, the provinces' debt-to-GDP ratios have continued to rise even as the Canadian economy has been in recovery, and the ratio has returned to mid-1990s levels.

With heavy burdens of health care, education and infrastructure resting primarily on provincial shoulders, the upward trend will be hard to turn around.