Canadians' high debt levels have long loomed as perhaps the biggest risk to the country's economic health. But the latest data from Statistics Canada show that those ominous storm clouds, while not entirely blowing over, are certainly parting.
Statscan's National Balance Sheet and Financial Flow Accounts report for the first quarter, released Thursday, shows that total household debt rose just 0.4 per cent in the quarter, its slowest pace in four years. On a year-over-year basis, household debt grew 4.2 per cent – its slowest pace in more than 12 years.
And this is no one-off: The year-over-year pace of debt growth has declined for four straight quarters. That kind of sustained consumer restraint typically only happens during recessions.
Mortgage debt, which makes up nearly two-thirds of all of Canada's household debt, grew just 0.6 per cent in the quarter, its slowest pace since the depths of the Great Recession in early 2009. While there's no question that the first quarter is, historically, the slow season each year for mortgage debt (and Statscan's figures aren't seasonally adjusted), it's worth noting that on a year-over-year basis, growth in mortgage debt has been tracking near 12-year lows for the past year now.
Consumer credit debt (essentially, credit cards), which makes up nearly 30 per cent of all household debt, actually fell 0.3 per cent in the first quarter, the first decline in two years. Again, first-quarter pullbacks aren't unusual (it has happened three times in the past five years, and almost certainly reflects a tendency to pay down credit-card debts run up over the Christmas season), but it's worth noting that this is coming off a fourth quarter where credit debt rose a tepid 0.5 per cent. On a year-over-year basis, consumer credit grew a modest 2.4 per cent in the quarter; before the recession, it was growing at four times that pace, and as recently as 2011 the growth rate was double what it is today. Clearly, Canadians are reaching for the credit card a lot less than they used to.
The ratio of household debt to disposable income – a key yardstick for the potential strain of debt levels on the month-to-month household budget – certainly remains a source of concern, at a near-record 163.2 per cent in the first quarter, down only slightly from the fourth quarter's 163.9 per cent. However, the ratio has ticked down, if only a hair, in each of the past two quarters, indicative of a stabilizing trend. (And, as I noted in a recent ROB Insight commentary, a lack of income growth may now be the bigger issue here than the debt side of the equation.)
But when you look at the asset side of the household balance sheet, it has improved markedly against the debt side. The debt-to-total-assets ratio was 18.6 per cent in the first quarter, its lowest in nearly six years. The more the value of household assets bounce back from the hit they took during the recession (note that the Canadian stock market only just yesterday returned to its pre-recession high), the healthier the household balances continue to look.
Is the risk that household debt poses to the Canadian economy behind us? Not entirely; and certainly, policy makers at the Bank of Canada don't think so. But Canadians are certainly getting their household books in better order. It will take time, but there's little doubt that a healthier trend has taken hold.