Skip to main content

The Globe and Mail

Canadians are still in deep trouble on household debt

These are stories Report on Business is following today. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage. Follow Michael Babad on Twitter.

Net worth continues to climb Wealth in Canada continues to rebound from the great crash.

Overall household net worth increased 2.2 per in the fourth quarter to $6.2-trillion, following on the third quarter's 3-per-cent climb, Statistics Canada said today.

Story continues below advertisement

On a per capita basis, that's an increase to $181,700 from $178,200.

"The gain in the Standard and Poor's/Toronto Stock Exchange composite index of about 9 per cent in the fourth quarter was reflected in rising values of household equities (including mutual funds) and pension assets, albeit at a slower pace than the previous quarter," the statistics gathering agency said.

"Equity holdings of the household sector increased by $129-billion in 2010 while they increased by $194-billion in 2009, after a $306-billion drop in 2008."

Mortgage and credit card debt also climbed again, though the ratio of debt to personal income dipped to 146.8 per cent because the latter rose at a faster pace of 1.8 per cent.

National net worth, which takes in the overall economy, rose 0.3 per cent to $6.3-trillion.

"The advance in national wealth was largely offset by a further increase in Canada's net foreign debt. This largely reflects continued foreign investment in Canadian debt securities, mainly government and corporate bonds in the fourth quarter."

Toronto-Dominion Bank economist Diana Petramala said that while the "damage" to household balance sheets from the recession are a thing of the past, debt levels remain a concern.

Story continues below advertisement

"The slight decline in both the debt-to-income ratio, and the debt-service ratio reflects a 7.3-per-cent annualized gain in personal disposable income in the fourth quarter of 2010, which was largely bolstered by charitable donations from corporations, and record low mortgage interest rates," she said.

"Not only was the boost to income likely temporary, these gains are unlikely to have accrued to households carrying the debt. As such, the decline in these ratios likely underestimates the challenges that household debt poses for many."

Consumers, she added, are going to have to get used to slower growth in asset prices as housing gains likely cool though stocks continue to gain.

"As households are expected to continue to accumulate debt at a faster pace than asset and income growth, the key measure of indebtedness will continue to deteriorate," Ms. Petramala said.

"As such, the level of household debt is expected to act as a headwind on economic growth through the second half of 2011, and 2012 as rising interest rates encourage households to rein in their borrowing and increase savings."

BMO Nesbitt Burns economist Sal Guatieri pointed out that the pace of growth in debth has slowed from the double digits of three years ago to now rise "moderately faster" than disposable income, or 6.5 per cent, year over year, versus 5.2 per cent.

Story continues below advertisement

"A further modest slowing toward long-term income growth of around 5 per cent would go a long way toward vanquishing fears of a debt problem," he said.

Economies still expanding The latest economic indicators continue to point to recovery in most members of the Organization for Economic Development and Co-Ordination, the group said today, with signs of "regained growth momentum" in Canada and France.

The OECD's composite leading indicators for January show "robust expansion" relative to the others in Untied and Germany, the group said in a statement. Japan was in that group, as well, though the measure came before the earthquake and tsunami.

The indicator for Italy points to a "moderate downturn," the OECD said.

Manulife says Japan quake has limited impact Manulife Financial Corp. said today it expects no "material" impact on its full-year financial results from the tragic earthquake and tsunami in Japan.

"In response to queries, Manulife Financial Corp. confirmed that it does not expect the property and casualty reinsurance claims related to Japan's March 11 earthquake and tsunami to exceed $150-million after-tax, and, as such, this is not expected to be material to full year results," the Canadian insurer said in a statement.

"Manulife also announced today it has confirmed the safety of all employees and agents in Japan. In addition, all systems, networks and operations are functioning, ensuring undisrupted customer service."

Japanese stocks plunge Japanese stocks plunged today, losing almost $300-billion (U.S.) in value as investors weighed the financial impact of the devastating earthquake and tsunami that has killed untold numbers and crippled the economy.

"Until there's a more thorough damage assessment, it will be tough to gauge the economic impact on Japan, but we've lowered our call for Q1 GDP growth," said BMO Nesbitt Burns economist Benjamin Reitzes.

"However, rebuilding efforts should boost the growth for rest of the year, leaving our annual growth forecast unchanged for now at 1.6 per cent. Similarly, the 1995 Kobe earthquake had little impact on GDP growth, which was 1.8 per cent for the year and 3.4 per cent, annual rate,. in the quarter of the quake."

Some analysts now believe Japan's economy will contract in the first half of the year, though the huge task of rebuilding will lead to a rebound in the second half.

"A shock like this will be transmitted from infrastructure damage in the northeastern corner of Japan to every part of the economy," said Carl Weinberg, chief economist at High Frequency Economics.

"In the United States, we learned a lot about this in the wake of the Sept. 11 terrorist attacks on New York and Washington, and after Hurricane Katrina."

Economists Peter Buchanan and Emanuella Enenajor of CIBC World Markets cited preliminary estimates that put spending on reconstruction at about 1 per cent of GDP.

"Coming just a month after a Moody's rating downgrade, the quake is likely to intensity pressure on the Kan government to bolster spending, straining the county's already precarious finances," they said.

"While much of the total is held domestically, Japan's 200 per cent debt-to-GDP ratio is the highest in the G7 by a wide margin. Even before the quake struck, the primary (non-interest) deficit was expected to readily surpass 2 per cent of GDP this year, also extremely high."

Tokyo stocks may have plunged, they said, but "given continued strong earnings growth in the U.S. and Europe and support to valuations from low yields, the disaster's impact on equity markets outside Japan should continue to be limited."

Uranium miners plunge Shares of Canadian uranium companies plunged today as investors began to take stock of what the devastation in Japan could mean for the nuclear industry.

Shares of both Cameco Corp. and Uranium One slumped sharply. Denison Mines Corp. also slumped.

Separately, TD Newcrest cut its 12-month price on shares of Cameco Corp. to $42 from $51, citing the uncertainty surrounding the nuclear industry.

"An extended shutdown of a number of reactors in Japan could have an impact on demand for uranium - in 2010, Japan accounted for approximately 12 per cent of global uranium demand," said analyst Greg Barnes.

"To the best of our knowledge, Cameco sells 10-15 per cent of its annual volume into the Japanese market. We estimate that in a worst case scenario, if Cameco were to lose 10 per cent of its sales volume in 2011... that could not be replaced with sales to other customers, our EPS estimate would decline to $1.35 from $1.71."

Cameco's chief executive officer Jerry Grandey, however, said he expected no marked impact on the company.

The global nuclear industry, Mr. Barnes said, "basically went into hibernation" for two decades after the Three Mile Island and Chernobyl incidents in 1979 and 1986.

"We do not believe that the nuclear renaissance would come to a complete halt following the events in Japan, but there is certainly potential that some reactor construction gets delayed, particularly in earth-quake prone areas (like China)."

He downgraded Cameco's stock to "hold" from "buy."

TD recommends Agrium TD Newcrest also changed its recommendation on Agrium Inc. .

Analyst Paul D'Amico boosted his recommendation to "buy" from "hold," though he maintained his price target at $105 (U.S.), saying he believes the 9-per-cent drop in the stock over the past month or so provides an attractive "risk/reward re-entry opportunity."

Where Japan is concerned, he said it's too early to tell, but that Japan's corn imports could be temporarily disrupted, affecting fertilizer stocks.

"Japan is the world's largest net importer of corn, representing about 16.1 million tonnes for 2010/11 out of a global import demand of 90.9 million tonnes, or about 2 per cent of global annual consumption," he said.

"We assume some of this product flow will be redirected at least to some extent. We stress however, that this would be temporary, not structural, and therefore doesn't change anything for us on [Agrium] fundamentally."

NFL lockout could hit wings A labour disruption in the National Football League won't just hurt the fans, but also a chicken wing industry that's already suffering, says the chief executive officer of Sanderson Farms Inc. .

Traditionally popular during football games, "it would be terrible on wings," Joe Sanderson said at a Reuters Global Food and Agriculture Summit in Chicago today.

The teams and the players remain apart on several issues. If there's a lockout, "it would be very bad for chicken wings and I do not know to what extent it would be bad for other products they sell in those watering holes or sports bars. It would not be good, I'd tell you that," Mr. Sanderson said.

According to Reuters, wholesale prices in Georgia were $1.04 (U.S.) a pound ahead of this year's Super Bowl, well down from levels of a year earlier, and have dropped even further this week.

Teck cuts coal forecast Teck Resources Ltd. has cut its forecast for coal sales in the first quarter because of harsh winter weather that affected shipments.

Teck now expects sales of 4.6 million to 4.9 million tonnes, down from the 5 million to 5.5 million originally projected. It also compares to an average of 5.3 million tonnes in the first quarter of each of the past six years. It cited avalanches and other rail troubles in the quarter, adding it was too soon to assess the potential impact from Japan's earthquake.

"Actual sales volumes will depend on rail and port performance for the balance of the quarter," Teck said in a statement.

"Teck is working closely with its rail and port service providers to address these issues and to implement measures intended to enhance rail and port performance, including increasing train sets and slots, adding cars per train and adding crew. Teck expects performance to improve in the second quarter as a result of these measures assuming more normal weather conditions."

Buffett to acquire Lubrizol Berkshire Hathaway Corp. today struck a $9-billion (U.S.) deal to acquire Lubrizol Corp. , a chemicals group.

The $135-a-share offer makes it one of the biggest deals ever for Warren Buffett's Berkshire. Mr. Buffett described Lubrizol as "exactly the sort of company with which we love to partner."

In Personal Finance today

Home buyers often fall into emotional traps when looking for a home. Here are some tips on how you can avoid making the same mistakes.

If an investment sounds too good to be true, it probably is, writes Dianne Nice. Here are nine steps to help you determine whether an opportunity is actually a scam.

Sarah Cook, who runs the Raising CEOKids website, says we shouldn't be coddling our kids -- instead, we should give them the financial tools to deal with life. It has raised the ire of some parents, writes Sonali Verma.

From today's Report on Business

Report an error
About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.