Despite the very high level of household debt to incomes in Canada, a number of indicators suggest that the financial health of Canadians is steadily improving.
This observation is based on a number of key metrics. First, based on data through October of 2011, the number of personal bankruptcies in Canada is down by just over 16% year to date and still appears to be trending lower.
Second, although mortgage arrears in Canada are still above the very low levels they reached prior to the 2009 recession, they have been trending steadily downward since early 2010 and are now at their lowest level since January of 2009.
Third, while the delinquency rate (90 days and over) on credit cards, currently 1.06% (October 2011) is somewhat above the lows it reached in mid 2006 (0.75%), it has been trending steadily lower since it peaked in Q4/2009 at 1.34%.
Across the country, based on the regional pattern of personal bankruptcies it appears that the stronger pattern of job growth and the accompanying growth of incomes has, on balance, contributed to an increase in the financial health of the provinces west of the Ontario/Quebec boarder relative to those to the east of it.
Financial health will strengthen
Looking forward, a number of indicators suggest that the financial health of Canadians will gradually strengthen over the course of 2012 and that this improvement will cause personal insolvencies to remain low.
First, following a hiatus in the fourth quarter of last year, job growth in Canada should accelerate due to the effects of the recent pattern of stronger U.S. demand for Canadian exports of commodities as well as for manufactured goods.
Second, persisting low inflation and lingering concerns about the European sovereign debt crisis suggest that the Bank of Canada will keep interest rates low thereby helping to ensure that debt service costs don’t suddenly escalate and contribute to sharp deterioration in the financial health of borrowers.
Having said this, bankruptcies in western Canada will probably remain below the national average due to sustained strong demand for resources.
Business and Consumer Bankruptcies in Canada