Canadian debt loads grew at their fastest pace in two years during the summer, according to a report released Wednesday — an alarming rate given that officials continue to warn consumers that household spending is out of control.
Credit reporting agency TransUnion's latest quarterly analysis of Canadian credit trends found average consumer non-mortgage debt jumped 4.6% year-over-year in the third quarter to an average of $26,768.
Measured on a quarterly basis, debt grew 2.1% in the summer from the second quarter of this year.
One expert said the increase stands in stark contrast to encouraging signs from relatively stagnant debt growth in the prior three quarters.
He also pointed out that in the past five years, debt loads have increased 400% more than the rate of inflation — with inflation as measured by the Consumer Price Index up 9% and consumer debt jumping more than 37%.
An 11% uptick year-over-year in auto loans to an average of $19,228 was the main driver of the growth in overall debt as consumers are once again shopping for cars, a big ticket purchase largely put aside during the doldrums of the recession.
Canadian instalment loan borrower debt grew 2.3% over the third-quarter of last year to an average of $22,849.
Experts said they believe the reason consumers continues to ramp up their debt loads — aside from the protracted period of record low interest rates — is that scary economic headlines from around the world have started to dissipate, with less bad news coming out of Europe, the U.S. posting growth and Canada reporting a healthy jobs market.
Still, there were some glimmers of positivity in the report. Canadian average credit card debt — which carries the highest carrying costs — was down 1% year-over-year, though it was up half a percentage point from the previous quarter and now hovers at an average of $3,573.
Borrowing on lines of credit fell 0.2% year-over year, but grew nearly 1% since the second quarter of the year and sits at an average of $34,050.
Perhaps the most encouraging news in the report was that delinquency levels — those who are late or default on a loan— continue to remain low across all categories.
In fact, last week TransUnion's competitor, Equifax Canada, reported that the number of Canadians missing or defaulting on loan payments fell to pre-recession levels during the summer even though the amount of money owed continued to rise.
Equifax found that overall non-mortgage debt loads during the third quarter were up 1.8% from the same quarter of last year. However, only 1.22% of debts were unpaid after 90 days or more in the July-September quarter.
That's down sharply from 1.37% in the previous quarter and the lowest delinquency rate on record going back to early 2007, before the recession began.
Canadians have heard repeated warnings from both Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty about the perils of taking on too much debt.
Still, Statistics Canada's recently released revised data shows that household market debt has risen to 163% of disposable income.
