The Canadian consumption boom has reached new heights, fuelled by a combination of cheap credit and growing confidence in an economy that is slowly recovering from the depths of the 2014/2015 oil slump.
The latest retail sales data released by Statistics Canada Tuesday morning showed yet another month of gains for Canadian retailers — sales of all goods totalled $49 billion in the month of June alone, led in fact, by clothing and clothing accessories stores.
Retailers in Canada seem to be on a winning streak this last six months, generating $291 billion in sales since January 2017, the biggest half-year gain in almost thirty years.
This spending pattern, is in fact exactly what economists want.
Back in 2010, policymakers lowered interest rates to encourage consumers to borrow, spend, and get the economic engine revving. That is indeed what happened in the first few years of this cheap credit environment, but then the oil crash of 2014 threw a dagger at that particular piece of monetary policy, creating widespread job losses and shattering consumer confidence.
Between 2015 and mid-2016, retail sales were below average, but they’ve since picked up, due mostly to recovering oil prices and the housing boom in Toronto and Vancouver. The unemployment rate is now at a healthy 6.3 percent, the lowest it’s been since 2010.
But that doesn’t necessarily imply people are spending more because they have the MEANS to spend more.
Inflation-adjusted earnings (the amount you’re earning taking into account the increase in cost of living) for salaried workers in Canada showed zero growth in 2016, according to Statistics Canada. And although minimum wage has gone up in certain provinces, inflation-adjusted earnings for hourly workers was down by 0.4 percent.
What more, Canadian debt levels have continued to increase over the last one year.
Credit monitoring firm TransUnion found that the average Canadian owed $22,154 as of June 2017, over and above any mortgage debt they have, an increase of 2.65 percent from the year before.
“I think Canadians are happy being in debt as long as they can service it every month,” says Rubina Ahmed-Haq, a personal finance expert. “People are sick of waiting for their lives to get cheaper.”
The biggest increase in debt came from installment loans — high-interest, short-term credit that many people use for large expenses like furniture, dental treatment and even vacations.
“The real problem is the piling up of consumer debt, not mortgage debt — all this stuff that you’re buying on lines of credit or installment loans will depreciate in value every year, and be eventually worth 25 percent of what you purchased it for,” says Ahmed-Haq.