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5 Factors Threatening the Canadian Economy: Consumer Spending

In the mini-series we’ve been running all week focusing on the biggest threats to the Canadian economy, we’ve looked at the housing market, oil prices, and just yesterday, household debt.

Debt is worrisome of course because if people are taking on too much of it (as Canadians have been for the past few years,) they have no money left to pay their bills and companies and individuals in Canada go without payment. Yes, household debt is bad, but there’s a flip-side to it. We also need household debt, at least a certain level of it, because we need to know that people are spending their cash. It doesn’t seem as though we are right now, and that means consumer spending is the next biggest threat to the Canadian economy.

Consumer debt is sometimes a good thing, such as during the recession when it received global acclamation for carrying our country through the worst of times. We need some of that debt, because it disperses the cash flow to different parts of the country and keeps everything in balance. Too much of that debt, and we’re in the problem the States were just before they crashed when those consumers have so much debt that they can’t pay any of it.

Too little of that debt though, also isn’t a good thing because then the cash isn’t being dispersed as it should be, and there’s no cash to keep the country, and the businesses and citizens within it, afloat. That seems to be where we’re headed if we’re not careful. As people become more concerned about that household debt we talked about yesterday, they start to reign in their purse strings and stop spending so they can pay off some of their debt.

That’s just what’s been happening, after warnings from the federal government that we’re getting into too much debt, and that poses a threat to the Canadian economy.

December of 2012, a time when people are especially prone to opening their wallets to purchase gifts for others (and themselves) saw a drop of 2.1 per cent in retail spending, something that was especially concerning for retailers. And it’s not just past consumer spending that has shone the light on this threat.

Just this past Friday Statistics Canada revealed that consumer purchases were up, but only by 0.1 per cent in April when compared with the month before – an especially flat March. Year over year, that increase was only 1.5 per cent.

Of course this means that consumers are keeping more of their paycheques at home, which is a good thing. But it’s a fine balance. And if we can’t at least continue this modified pace of consumer spending, if not increase it slightly, it could be a real threat to the Canadian economy.

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