Stats Canada Calculations Show Canadians in Worse Shape than Thought

By: Gary Parkinson on October 15, 2012

When people hear the saying ‘things are not always as they seem’ it usually is a sign of bad news.  Unfortunately in the latest use of that phrase it is indeed bad news.  Canada has been trying to stand strong as economic chaos swirls in the rest of the world; but the problem isn’t entirely on the outside.  Bankers, economists, policy makers, and the media have for months been warning Canadians household debt levels are too high.  And now, it seems the initial debt projections were low-balled from what they really are.

It seems Stats Canada’s methodology for comprising data is outdated with new international standards used by other countries.  As a result, the initial numbers released to the public were lower than they actually are.  Stats Canada previously said Canada’s first quarter debt-to-income ratio was 152 percent of household income but under the new revisions, Canadians actually had 161.8 percent of their income tied to debt.  More troubling was that before the government’s tightening of mortgage insurance rules came into effect, debt was continuing to climb and Canada’s second quarter has now revealed 163.4 percent of household income is swamped in debt.

The revisions now exclude non-profit organizations from the calculations; they still do their work to prop up low income households but this factor is now omitted from the debt level calculations.  The figure now more accurately portrays how vulnerable Canadians are should they suddenly lose their jobs or if the housing market does indeed crash.  With such over-indebted household budgets struggling to make ends meet as things are, a negative slip from the status quo would sink households completely.

A representative from Stats Canada says Canada now faces a higher debt to household income level than the U.S and the economy south of the border is struggling even worse.  At the same the Bank of Canada repeatedly warns interest rates will be rising in the medium term which will only add unnecessary pressure to mounting debts as they are now.

Canada has so far withstood the worst of these dark economic times but the household debt levels have been singled out by government, Bank of Canada Governor Mark Carney, and now the International Monetary Fund (IMF) as the most serious internal threat to Canada’s economy.  What the third quarter may report is still a ways away but if something isn’t done to bring debts in line, Canada may not be withstanding anything from the outside world anymore.