February 3, 2010
Economic Snapshot
Consumer bankruptcies slowing, business bankruptcies already low
JOHN CLINKARD
consulting economist, CanaData
The most recent data on bankruptcies in Canada reflect two sharply contrasting developments. The first is consumer bankruptcies, which are up by 31.2% year to date in November.
Although the total number of consumer bankruptcies in November (8,482), was well above the five-year monthly average (7,468), over the past seven months the year-over-year rate of increase in the series slowed from +57% in March 2009 to +3.9% in November.
This slowdown in consumer bankruptcies over the past five months strongly suggests that the recent pickup in full-time job creation, and an accompanying decline in total unemployment, is helping to reduce the incidence of bankruptcy among consumers.
Also, the fact that consumer bankruptcies have declined over the past several months in every province except Prince Edward Island indicates that the improvement in the financial health of consumers is widespread and not confined to any one province.
The pattern of business bankruptcies during the recent recession contrasts sharply both with the pattern seen during past downturns, and with that of consumer bankruptcies.
The incidence of business bankruptcies year to date in 2009 is 11.2% lower than it was in 2008.
This is the case despite a hostile economic climate that has been characterized by plunging investor confidence and a restrictive lending climate and shrinking profits.
This compares to a 34.5% year-over-year increase during the last major downturn in 1990.
Moreover, across the country, business bankruptcies are lower on a year-to-date basis in every province except Saskatchewan and P.E.I.
From an industrial perspective, business bankruptcies are lower on a year-to-date basis in 12 of 20 industrial categories, led by agriculture (-27.3%), transportation (-26.9%) and construction (-22.3%).
It is worth noting that this year-to-date decline in business bankruptcies is consistent with the fact that heading into the recent recession, non-financial firms had much stronger balance sheets than in previous downturns.
Looking forward, the recent pattern of declining business bankruptcies, accompanied by strong corporate balance sheets, bodes well for a solid pickup in capital spending in the second half of 2010 and into 2011.
John Clinkard has over 30 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Business and consumer bankruptcies
Data source: Office of the Superintendent of Bankruptcies/Chart: Reed Construction Data – CanaData.
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