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Household Debt, Inflation and 1) Statistics Canada Says Household Debt-To-Income Ratio Lower In Q3, Service Costs Up 2) Persistent Inflation and High Interest Rates Slow Growth across Canadian Cities 3) It’s The Economy, Stupid: How High Inflation And Interest Rates Tanked The Liberals

ByPatricia Dent

1) Statistics Canada Says Household Debt-To-Income Ratio Lower In Q3, Service Costs Up 2) 3) It’s The Economy, Stupid: How High Inflation And Interest Rates Tanked The Liberals

CANADIANS OWED $1.82 FOR EVERY DOLLAR OF HOUSEHOLD DISPOSABLE INCOME

Courtesy of Barrie360.com and Canadian PressPublished: Dec 14th, 2023

Ritika Dubey, The Canadian Press

The amount Canadians owe relative to their income edged lower in the third quarter, but the cost of servicing that debt relative to income climbed, Statistics Canada said on Wednesday.

The agency said household credit market debt as a proportion of household disposable income in the third quarter fell to 181.6 per cent, on a seasonally adjusted basis, down from 181.9 per cent in the second quarter.

In other words, it says Canadians owed $1.82 in credit market debt for every dollar of household disposable income in the third quarter.

Meanwhile, the household debt service ratio was 15.22 per cent in the third quarter, up from 15.08 per cent in the second quarter, as debt payments grew faster than disposable income.

RBC economist Carrie Freestone said in a note that the household debt service ratio is already at record levels and will move higher as debt payments continue to rise alongside a softening labour market.

The cost of borrowing has risen since the Bank of Canada started hiking its benchmark rate to bring inflation back to its target of two per cent.

Freestone estimated further interest rate hikes from the Bank of Canada have become increasingly unlikely.

“The Canadian economy has already contracted for five straight quarters on a per−capita basis with consumer spending softening,” she said. “We look for a pivot to gradual rate cuts by mid−next year.”

Statistics Canada also reported household disposable income rose 1.0 per cent, while credit market debt gained 0.8 per cent.

Sandra Fry, a credit counsellor with Credit Counselling Society, said stress levels among her clients struggling with debt have been extremely high this year.

“This is my 13th Christmas being a counsellor and this is the most stressed I’ve ever seen people be,” Fry said.

She said even though inflation has eased, clients don’t feel it has translated to the checkout line at grocery store.

The cost of living is still a pain point, Fry said.

She suggests many people either need to cut back on what they’re spending or increase their earnings.

The agency said household net worth shrank 1.8 per cent to $16.2 trillion, dragged down by weaker financial and housing markets.

The value of real estate fell after two consecutive quarters of recovery while foreign and domestic equity markets softened — the S&P/TSX Composite Index fell by three per cent, according to the agency.

Maria Solovieva, an economist with TD Bank, said the financial weather turned stormy in the third quarter.

“The effect was amplified when we adjust for inflation and population growth: real wealth per capita was 5 per cent lower for the quarter,” Solovieva said in a client note.

“Although stocks bounced back since then, this rebound might still get dampened by a further pullback in Canadian home prices, on track to decline more than 3 per cent in Q4.”

2) Persistent Inflation and High Interest Rates Slow Growth across Canadian Cities

December 7, 2023

Courtesy of the News Room: CBoC Team, Conference Board Of Canada

Ottawa, December 7, 2023 — Canadian cities will experience slow growth for the remainder of 2023, as higher interest rates and persistent inflation erode consumer purchasing power and constrain local economies, according to new research from The Conference Board of Canada.

“Following Canada’s rebound from the pandemic, higher interest rates and stubborn inflation have started to ease consumer spending,” said Jane McIntyre, Principal Economist at The Conference Board of Canada. “We expect this economic slowdown to continue into 2024 across most cities but predict slight momentum gains in 2025.”

  • Edmonton’s real GDP growth will slow to 2.9 per cent in 2023, still outperforming all other major Canadian cities, before retreating to 1.8 per cent in 2024. Improvements in oil prices have stimulated the economy across Alberta, including Edmonton, the provincial capital. The city’s solid economy and affordable housing are attracting out of province homebuyers, accelerating population growth and housing sales, but also prompting faster price increases.
  • Global demand for several of Saskatchewan’s key resources remains strong, but significant declines in commodity prices will have spillover effects for Saskatoon.  GDP is forecast to grow by 2.8 per cent in 2023, reflecting a drop from the previous year, yet keeping the city well above the provincial average. Projected growth for 2024 is 1.9 per cent.
  • Winnipeg’s manufacturing sector is set for expansion due to supply chain improvements and a new bus contract acquired by New Flyer. Ongoing construction of the CentrePort Canada rail park will also strengthen the city’s transportation and warehousing sectors. However, a minor economic slowdown is expected, with GDP forecast to increase 2.7 per cent in 2023 followed by a lesser 1.2 per cent in 2024.
  • With London’s tight labour market and consumers’ excess savings, households have remained confident in their spending on services, but higher interest rates are starting to take a toll. GDP growth is expected to be 2.7 per cent in 2023 before slowing to 1.1 per cent in 2024.
  • Job gains in the goods-producing industries will drive an employment surge in Moncton, although this uptick will be temporary. The cooling of consumer spending is leading to job losses in some sectors, while labour shortages plague others. Economic growth is forecasted to expand by 2.4 per cent in 2023, slowing dramatically to 0.6 per cent in 2024.
  • Unemployment is set to rise due to the impacts of higher interest rates, but Windsor’s overall outlook remains positive, largely due to the considerable number of investments the city has attracted. Growth in the city’s economy is projected to be 2.4 per cent in 2023 before moderating to 1.7 per cent in 2024.
  • Strong employment prospects and affordable housing prices are spurring Calgary’s local housing demand. GDP for the city is forecast to increase 2.3 per cent in 2023 and a further 2.1 per cent in 2024.
  • Thunder Bay’s $1.2 billion jail project will stimulate local job growth and support economic expansion. GDP is anticipated to rise to 2.0 per cent in 2023 and an additional 2.5 per cent in 2024.
  • Conditions for Saskatchewan’s resources are mixed, but a number of key commodity prices are softening. As the provincial capital, Regina will experience the effects of these conditions, which is anticipated to limit growth to 2.0 per cent in 2023 and 1.5 per cent in 2024.
  • Oshawa’s manufacturing sector, an economic staple, is poised for growth due to investments from General Motors and the provincial and federal governments that will support the city’s GM plant. GDP is projected to expand by 1.9 per cent in 2023 and 1.8 per cent in 2024.
  • As a result of the declining demand for goods, domestically and internationally, the biggest drag on Halifax’s growth will be the goods sector. GDP is expected to rise 1.8 per cent in 2023 before expanding a further 1.0 per cent in 2024.
  • Elevated net international migration in the St. Catharines-Niagara region will help support labour supply, however, labour shortages will persist. The region’s heavy dependence on the services sector will help shield it from a major downturn during the slowdown. GDP is forecast to grow 1.8 per cent in 2023, slowing to 1.3 per cent growth in 2024.
  • Declining consumer purchasing power and elevated borrowing costs for businesses will curtail short-term domestic demand and hinder growth in several of Kingson’s key sectors. The city’s real GDP growth is expected to be 1.7 per cent in 2023 and 1.0 per cent in 2024.
  • Kitchener-Cambridge-Waterloo’s anticipated employment gains in 2024 are expected to outpace the increase in the labour force, but rising interest rates and a recession threat will limit GDP growth to 1.7 per cent in 2023 and 1.5 per cent in 2024.
  • Despite improvements in supply side issues, cooling domestic and international demand will dampen short-term growth in Toronto’s manufacturing sector. GDP is forecast to expand by 1.5 per cent in 2023 and 1.3 per cent in 2024.
  • Employment growth in Guelph remains positive, but slower job gains will lead to a spike in unemployment in the region. GDP is forecast to advance 1.5 per cent in 2023 and 1.2 per cent in 2024.
  • Weak housing demand is hindering growth in Montreal’s finance, insurance, and real estate, the city’s largest sector. Output from the manufacturing sector is also expected to slow, as high prices lower demand for goods and rising interest rates discourage investments. The city’s GDP is forecast to expand 1.4 per cent in 2023 and a further 0.7 per cent in 2024.
  • Households in Ottawa-Gatineau are better prepared to handle rising interest rates and persistent inflation due to the region’s high incomes relative to other Canadian cities. Still, GDP growth is forecast to slow to a modest 1.3 per cent in 2023 and 1.1 per cent in 2024.
  • Tightening household finances, impacted by higher costs of consumer essentials, are curbing short-term consumer spending, which is hurting output from Vancouver’s retail trade sector. The city’s real GDP will increase by 1.2 per cent in 2023 and 1.5 per cent in 2024, largely due to growth in the services-producing industry.
  • Minimal output advancement in Hamilton’s goods sector has been a major constraint on the city’s overall economic growth, contributing to a 0.9 per cent increase in real GDP for 2023. While still modest, economic growth will reach 1.6 per cent in 2024.
  • Even with strong net international migration, Victoria’s labour force is expected to decline. Inflation and high interest rates are dragging on the local economy, which is forecasted to expand by 0.9 per cent in 2023 followed by 1.4 per cent in 2024.
  • High interest rates are impacting Greater Sudbury’s real estate activity, new home construction, and consumer spending, lowering the region’s real GDP growth to just 0.3 per cent in 2023. However, mining investments and strong population growth are expected to boost GDP growth to 1.2 per cent in 2024.
  • A host of challenges, including high interest rates, reduced consumer spending, and labour shortages will limit Québec City’s GDP growth to just 0.1 per cent in 2023. The local economy will come to a standstill in 2024.
  • With ongoing challenges in the province’s oil and gas industry, no growth is expected for St. John’s in 2023. However, as the province’s offshore oil industry rebounds, growth in the local economy will pick up to 1.8 per cent in 2024.

Media Contacts: For all requests, including reports and interviews, please contact:: 1-866-242-0075 (toll-free): E-mail The Team: Before 8 a.m. and after 5 p.m., please send us an e-mail.

3) It’s The Economy, Stupid: How High Inflation And Interest Rates Tanked The Liberals

Courtesy of Barrie360.com and Canadian PressPublished: Dec 12th, 2023

By Nojoud Al Mallees in Ottawa

Justin Trudeau’s government has had to weather many storms over the last
eight years.

The SNC-Lavalin controversy. An old yearbook photo with the prime minister in blackface. Multiple ethics violations. The COVID-19 pandemic.

But as the governing Liberals continue to slide in the polls, the slow-moving hurricane that may actually end up blowing them away appears to be the economy.

For many, the pandemic has receded into little more than a bad memory. But the economic domino effect it touched off lingers on, wreaking electoral havoc on incumbent governments around the world.

High inflation and interest rates have left people feeling worse off, even as the Canadian economy outperforms expectations in many ways.

Polls suggest the governing party is badly trailing the Conservatives. Cost-of-living issues are dominating federal politics and a resurgent Tory party is placing the blame for the erosion of affordability squarely on Trudeau’s shoulders.

When did things start going so wrong for the Liberals?

Support for the Conservatives took off this summer, just as the Bank of Canada began raising interest rates again after pausing its rate-hiking cycle earlier in the year.

“That was when people were starting to cycle through the first wave of mortgage renewals,” said Tyler Meredith, a former head of economic strategy and planning for Finance Minister Chrystia Freeland.

Canadians renewing their mortgages this year are seeing higher monthly payments as they pay more in interest to finance their homes. That leaves less money on the table for everything else.

The federal government doesn’t actually set interest rates, but data suggest a close correlation between the Bank of Canada’s rate hikes and the bottom falling out of public support for the Liberals.

Even before this year’s spike, Abacus Data polling at the time suggested the Conservatives first started to overtake the Liberals after the central bank’s first post-pandemic rate hike in March 2022.

“I do think that was a turning point,” said David Coletto, the CEO of the Ottawa-based polling and market research firm.

A range of polling indicators have turned against the Liberals since then, he added.

For months, the federal government has faced relentless scrutiny, partisan and otherwise, for its perceived role in the affordability crisis.

Some economists accused Ottawa of spending too much in the face of soaring inflation, during a time when they said fiscal policy needed reeling in.

Housing advocates, policy experts and economists have also called out the Liberals for mismatched housing and immigration policies.

They argue that rapid population growth amid constrained housing supply compounded the effect of higher interest rates on affordability.

But much of what the Liberals are experiencing is also a global phenomenon. Inflation has ravaged economies around the world, pushing central banks to aggressively raise interest rates and turning voters against incumbent governments.

Inflation is now falling in many of the same countries. Yet incumbent leaders are still struggling.

In the United States, President Joe Biden is near an all-time low in his approval rating. There, the inflation rate was 3.2 per cent in October, while the Federal Reserve’s benchmark interest rate sits at about 5.4 per cent, the highest level in 22 years.

In the United Kingdom, Conservative Prime Minister Rishi Sunak’s approval rating has also plunged to a record low — even lower than that of Liz Truss, who had to resign after only 49 days in office.

The U.K.’s inflation rate was 4.6 per cent in October, while the Bank of England’s benchmark interest rate sits at 5.25 per cent.

In the Netherlands, inflation has fallen by a lot since peaking above 14 per cent last year. But concerns over immigration — and its perceived impact on affordability — led to the demise of a four-party coalition government in the summer.

The far-right Party for Freedom won the most seats in an election last month. Its leader, Geert Wilders, ran an anti-immigration campaign that was also focused on the cost of living.

“Inflation’s a cancer on government popularity, and there’s no easy treatment,” Coletto said.

Indeed, the treatment has been punishing in its own right. Central banks have responded to high inflation with hefty interest rate hikes that have made it more expensive for consumers and businesses to borrow money.

The Bank of Canada’s key interest rate currently sits at five per cent, the highest it has been since 2001.

The pullback in spending has slowed the Canadian economy this year and pushed up the unemployment rate, trends that are expected to continue in 2024.

At the same time, Canada’s economy has done much better than economists have expected over the last couple of years. It bounced back after the pandemic, pushing the unemployment rate to a near all-time low of 4.9 per cent in the summer of 2022.

The country has also skirted a recession so far, contrary to many forecasts. And inflation is 3.1 per cent, down significantly from last year’s breathtaking highs.

Yet people still feel down about the economy — a phenomenon Meredith described as a “vibe-cession.”

“To a lot of people, it looks and feels like a recession, even though we’re not actually in a recession yet,” he said.

The political challenge for the Liberals is finding a way to bridge the disconnect between negative public sentiment and the truth about the economy, Meredith added.

Meanwhile, Conservative Leader Pierre Poilievre’s aggressive yet simple cost-of-living message has been catching fire online. His 15-minute video about the housing crisis garnered millions of views on social media since it was released earlier this month.

The explainer-style video, which uses graphics and statistics to illustrate the scale of the housing crisis, argues that Canada’s housing affordability crisis has a simple cause: Trudeau himself.

But it’s too early to conclude that it’s over for the the Liberals, said Meredith, noting that a lot can happen between now and the next election. That contest is scheduled to take place by fall 2025, though it could be called before then.

On the economic front, things are supposed to look different by that time.

Most economists anticipate inflation will return to two per cent by 2025, while the central bank is expected to start cutting rates sometime next year.

Lower interest rates would signal a better outlook for the economy, but that won’t necessarily mean lower mortgage costs for everyone.

The central bank has been signalling that interest rates may not return to pre-pandemic levels, even as inflation gets more manageable. That means many Canadians will continue to renew their mortgages at higher interest rates, even as rates fall.

As for inflation, Canadians are stuck with higher prices, even if the pace of price growth comes back down to two per cent.

Given the anxieties people are feeling about the costs they’re facing, Meredith said the Liberals need a different economic message.

“If we say, ‘jobs and growth’ — which has often been a mantra that the government has repeated — I’m not sure that means anything to anybody,” he said.

“To get over that, you have to get in front of the issue and say, ‘Here’s what we’re doing to lower costs for you.’”

Patricia Dent
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