MNI REVIEW: Canada Net Worth Record +5% in Second Quarter

Canadians stashed away a record CAD94 billion of cash and deposits in the second quarter with government aid checks overwhelming a surge in unemployment during the Covid-19 lockdown, though dangers for heavily-indebted families lie ahead as state support is pared back.

Households added another CAD6.5 billion in mutual fund purchases between April and June, Statistics Canada reported Friday from Ottawa. Consumers who rang up dangerous levels of debt in a housing boom before the pandemic also curbed non-mortgage debts by CAD22 billion while mortgage borrowing was little changed.

The global market rebound restored most of the paper losses that hammered personal retirement savings accounts in the first quarter, boosting the value of stocks and investment funds by CAD308 billion.

Overall household net worth jumped a record 5% to CAD12 trillion in the second quarter, following a record decline in the first three months of the year. That's higher than net worth before the pandemic, which was CAD11.7 trillion in the fourth quarter of last year and plunged to CAD11.4 trillion in the first part of 2020.

In a year where cash is king for investors and families, a comeback from Covid may rest on further stimulus. Prime Minister Justin Trudeau said this week he will push ahead with relief, while shifting people from relief checks to somewhat stricter unemployment benefits. The government has paid out CAD72.6 billion of "CERB" relief checks, helping swell the deficit to a record CAD343 billion.

DELINQUENCY RISKS

Bank of Canada Governor Tiff Macklem in a speech on Thursday made several references to the benefits of strong fiscal action. The federal housing agency warned of a risk of delinquencies as time runs out on a program to defer mortgage payments for up to six months that has been used 760,000 times.

"More challenging times are likely ahead," TD Bank economist Ksenia Bushmeneva wrote in a research report. "These support measures will gradually begin to wane, and the state of the labor market and consumer finances cannot diverge indefinitely."

The closely-watched ratio of household debt to disposable income plunged from 175.4% to 158.2% in the second quarter, Statistics Canada said. The relative cost of debt service payments also plunged after approaching records of around 15% over the last few years.

Consumer confidence and spending power may also be shored up by the unabated gains in housing, up CAD78 billion and recorded by StatsCan as a non-financial asset.