Debt-strapped Canadians are reaching the limits of their capacity to borrow and spend, but there are early signs the holiday shopping season, while lacklustre, will not be the disaster that some had feared.
Retail sales in September climbed 1 per cent, Statistics Canada said Tuesday, twice as much as anticipated and the fastest gain in almost a year, led by an increase of almost 4 per cent among car and truck dealers. The report all but confirms the economy bounced back in the third quarter with an impressive annual growth rate of at least 3 per cent, after shrinking in the previous period.
It also suggests most Canadians were unfazed by the fiscal dramas playing out on both sides of the Atlantic Ocean and the volatility that they fuelled in global stock markets, and offers hope that consumer spending – which makes up more than half of all economic output – may not come to the grinding halt that some economists have feared.
Nonetheless, the strong monthly gain is not likely to be repeated, analysts and retailers said, and it is questionable to what degree consumer spending can be expected to propel the recovery. This year's holiday sales are not expected to exceed last year's gains, retail watchers predict. And into 2012, elevated household debt levels, slow wage growth, and a labour market that is no longer producing a meaningful number of jobs will restrain purchases, economists added.
"Canadians aren't closing wallets, but the cash registers aren't going to be deafening over the holiday season," said Craig Alexander, chief economist at Toronto-Dominion Bank. "Consumers are still spending, even as their television screens are filled with terrible news about markets swinging about. But I do think the strength that we had in September is a bit of an aberration."
Analysts have warned for several months that Canadians' capacity to keep spending, and their appetite for ever-higher debt loads, would soon run out.
Credit-card debt surged almost $700-million nationwide in September from a month earlier, according to financial statistics compiled by the Bank of Canada. But the central bank's data shows that the broader trend is one of slowing. While the amount of outstanding credit-card loans was $63-billion in September, it was $64-billion six months earlier and $66-billion in January.
Growth in the total debt loads of Canadians – including loans for homes and cars, which make up the bulk of an average family's obligations – is still exceeding gains in income. Still, that gap is starting to narrow, if slowly, said Doug Porter, deputy chief economist at BMO Nesbitt Burns.
Retailers recognize that they are not in for a "particularly robust" season and are bumping up their discounting to lure anxious shoppers, said Ed Strapagiel, executive vice-president at retail consultancy KubasPrimedia.
Merchants in Canada are preparing to launch massive Black Friday sales, borrowing a leaf from their U.S. counterparts' bargain-mania playbook on the day after the Thanksgiving holiday south of the border, traditionally their busiest day of the year. In Canada, chains ranging from Wal-Mart Canada Corp. to Sears Canada Inc. are stepping up their promotions for the coming weekend, partly to stop consumers from cross-border shopping for U.S. Black Friday deals.
Wynne Powell, chief executive officer of London Drugs Ltd., which sells everything from televisions, computers and perfumes, said he expects holiday sales gains to be similar to those of last year, "but last year was slightly soft, so it's not a great year to be similar to."
Staff at his stores tell him customers have just started to turn their attention to holiday shopping, delaying the activity by at least 10 days from previous years, he said.
In summing up how he sees the holiday season unfolding, Mr. Powell said people still seem prepared to spend, but cautiously.
"There's not moments of joy, but there's not moments of despair, either," he said.