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Personal finances perk up despite ‘sound and fury’ over fat debts

These are stories Report on Business is following Friday, Nov. 29, 2013.

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Finances strengthen
Buried in today's GDP report from Statistics Canada are some encouraging signs on the home front that suggest Canadian families are getting their act in gear amid "all the sound and fury" surrounding high debt levels.

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Here are some highlights:

  • Disposable income increased in the third quarter by 1.2 per cent from the previous three-month period, and 4 per cent from a year earlier. That’s a “solid gain,” noted chief economist Douglas Porter of BMO Nesbitt Burns.
  • Wages and salaries among Canadians rose by 0.8 per cent, better than the second-quarter gain of 0.4 per cent. Pay climbed by 1.4 per cent in the goods-producing sector, marking the fastest pace in more than a year, at 0.5 per cent among service workers.
  • The household saving rate rose to 5.4 per cent, higher than the 4.9-per-cent average of the previous 10 quarters.
  • The debt service ratio – that’s the interest we pay on mortgage and other loans, divided by disposable income – has fallen to 7.2 per cent from 7.4 per cent this year.

"Disposable income is growing well above inflation, suggesting that many households are in fact strengthening their financial position," Mr. Porter said. "… We will get a more complete picture of household finances for Q3 in the next few weeks, but I suspect it will show some underlying gains (especially on the asset side of the balance sheet, with equity markets sparkling and home prices still grinding ahead).

He cited the decline in the debt service ratio "despite all the sound and fury over household debt."

Assistant chief economist Paul Ferley of Royal Bank of Canada agreed that the higher saving rate "may help counter our concern about the high debt levels," at the same time helping to support consumer spending.

As could the increase in wages and salaries, which, on an annualized basis, was 3.1 per cent, he added.

He questioned, however, whether that was retaking some of the "weakness" of the second quarter that was probably related to a construction strike in Quebec.

"The year-over-year rate for [wages and salaries] continues to trend lower to 3.1 per cent from a recent high of 5 per cent a year ago," he noted.

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Economy perks up
Overall, today's report from Statistics Canada showed the economy perking up after two lame years, expanding in the third quarter at an annual pace of 2.7 per cent.

That far outpaced the 1.6 per cent of the previous three months and was just shy of U.S. economic growth of 2.8 per cent at its latest reading, The Globe and Mail's Barrie McKenna reports.

Most of the country's major industry's boosted production in the latest quarter. The goods-producing sector expanded by 0.9 per  cent, and the services sector 0.6 per cent. Notably, Canada's manufacturing sector also turned in a better performance.

Consumers were still doing their part in the quarter, still spending though at a slower pace than during the second quarter. Business spending also rebounded. An inventory build-up also played a role.

And as expected, trade was a drag as exports slumped.

"Digging into the details, business capital spending ramped up, in part supported by re-starts to non-residential construction following the end of the Quebec construction strike," said economist Emanuella Enenajor of CIBC World Markets.

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"Over all, a firmer than expected reading," she added, noting that the pace of growth in the quarter was almost a full percentage point better than what the Bank of Canada had forecast.
The inventory build-up, half of it from the country's farms, means the Statistics Canada report isn't quite as strong as it appears on the surface.

Attention shoppers
Here's my take on Black Friday madness, with apologies to Carl Douglas, who had a one-hit wonder in 1974 with this novelty song:

Everybody was Kung Fu fighting
Those kicks were fast as lightning
In fact, it was a little bit frightening
But they fought with expert timing

"Black Friday in America will no doubt see shops packed to the rafters as the U.S. spends following the Thanksgiving festivities," said market analyst Alastair McCaig of IG in London. "This barometer of retail spending power  will be closely monitored as analysts try to gauge the likely spend over the month of December."

Japanese prices climb
Chalk up another win for Abenomics.

Named for Prime Minister Shinzo Abe, whose team came into power with a pledge to juice Japan's economy and end a long spell of deflation, Abenomics has been working in fits and starts.

Today, however, the key reading on consumer prices showed inflation running at its fastest in some 15 years.

That measure, which strips out energy and food costs, was 0.3 per cent in October.

Industrial output also gained, while Japan's jobless rate came in at 4 per cent for October.

"Tiny steps," said senior economist Jennifer Lee of BMO Nesbitt Burns. "But all in, Abenomics is still working. You won't see it every month, but so far, it is working."

Euro economy looks brighter
Rising prices are also fuelling hopes in the euro zone, as is marginally lower unemployment.

According to the Eurostat agency today, inflation in the 17-member monetary union ticked up to 0.9 per cent in November, compared to the 0.7 per cent of October that fueled fears of deflation.

"However, this is not yet the end of the disinflation story in the euro area, as we believe the euro area [harmonized index of consumer prices] should decelerate moderately in Q1 2014 and then average 1 per cent next year and 1.4 per cent the year after," said Herve Amourda of Société Générale.

"For the monetary policy makers due to meet next week, the price developments of November should not trigger any policy action."

The region's unemployment rate, meanwhile, dipped to 12.1 per cent from 12.2 per cent. That, however, masks the diverse nature of the labour market across the 17 countries.

Fire hits factory
A massive blaze apparently set by angry workers swept through a garment factory outside Bangladesh's capital, The Globe and Mail's Bertrand Marotte reports.

The fire is the latest in a series of incidents – including the collapse of an eight-storey factory that killed more than 1,100 people in April – related to troubles and strife in Bangladesh's apparel sector.

There were no reports of death or injuries in the fire that was reported Friday at a 10-storey building in Gazipur, 40 kilometres north of Dhaka.

A Reuters photographer on site said burnt garments found at the scene sported brand names from U.S. retailers such as American Eagle Outfitters Inc., Gap Inc. and Wal-Mart Stores Inc. Brands for Sears Canada Inc. were also spotted, according to Reuters.

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