A dash of data: Spotlight on Canadian households

Matthew Dequeljoe, OECD Statistics Directorate

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. This blog looks at a number of alternative indicators to see how households in Canada are faring.

GDP and Household Income

Neither real GDP per capita, which adjusts economic growth for price changes and the size of the population, nor real household disposable income per capita kept pace with the population growth in Q4 2015. The Canadian population grew 0.4% in the fourth quarter of 2015, outpacing real GDP and real disposable income growth which were both positive but relatively modest (increasing 0.2% and 0.3%, respectively). As a consequence, real GDP per capita decreased 0.2% (the index fell from 103.8 in Q3 2015 to 103.6 in Q4 2015), while the decrease in real household disposable income per capita, by 0.1%, was slightly less (with the index moving from 112.8 in Q3 2015 to 112.7 in Q4 2015).

Quarterly developments may be volatile. Chart 1 provides a longer-term perspective and shows how much GDP and household income have increased since the first quarter of 2007, just before the start of the economic crisis. Over this period, real disposable income per capita has increased substantially more than real GDP per capita (12.7 percent versus 3.6 percent, respectively).


In nominal terms (i.e. not adjusted for price changes) household disposable income increased in Q4 2015 compared with the previous quarter driven by increases in primary income, as compensation of employees and, to a lesser extent, income from self-employment rose. These gains were slightly offset by an increase in taxes, resulting in a drop in net cash transfers to households (i.e. benefits received minus taxes and social contributions paid) (Chart 2).

Chart 2 also shows that net cash transfers to households rose during the economic crisis  and sustained households’ disposable income levels. The increase starting in Q1 2008 to its peak in Q1 2010 corresponded to the time when real household disposable income began to diverge from Canada’s overall economic growth trend as seen in Chart 1.


Confidence, Consumption, and Savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being it is interesting to also look at households’ consumption behaviour. Chart 3 shows that the index of consumer confidence in Canada has still not recovered its pre-crisis level.  It decreased by 0.1 percentage points and stood at 99.3 in the fourth quarter of 2015. The index of real household consumption expenditure dropped from 111.2 in Q3 2015, its highest value since 2007Q1, to 111.0 indicating that households on average have slightly decreased their purchases of goods and services (Chart 4).



The households’ savings rate (Chart 5), which corresponds to the share  that households are saving out of current income, remained stable in Q4 2015 at 8.1%, 2.5 percentage points higher than its lowest point reached in Q4 2007 at 5.7%. The savings rate increased during the depth of the recession, in part reflecting households’ responses to deteriorations in financial markets and an increased level of uncertainty over future income.

Canada-chart5Note: It is necessary to adjust household income for the difference between pension contributions paid and pension benefits received (called adjustment for the change in pension entitlements) to appropriately calculate the change in net worth of households, since pensions are considered a financial asset of households.

Debt and net worth

The households’ indebtedness ratio (i.e. the total outstanding debt of households as a percentage of their disposable income) is a measure of (changes in) financial vulnerabilities of the household sector  and its evolution over time allows for an assessment of households’ debt sustainability. In Q4 2015, household indebtedness in Canada (Chart 6) increased to 166.2% of disposable income, its highest level since 1990. As mortgage debt makes up the largest component of household debt in Canada, Chart 6 shows that Canadian households have continued to increase their borrowings to finance house purchases, in the face of low interest rates and high house prices.


A growing debt ratio is often interpreted as a sign of increasing financial vulnerability. However, when assessing vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over financial liabilities) is used as an indicator of the financial vulnerability of households.

In Q4 2015, households’ financial net worth (Chart 7) in Canada was 343.8% of disposable income, rebounding 6.3 percentage points from Q3 2015. Holding gains on equity and investment fund shares helped boost households’ financial assets supported by a depreciating Canadian dollar that increased the value of foreign-denominated assets. Other factors included increased acquisitions of insurance and pension assets.



The unemployment rate and the labour underutilisation rate (Chart 8) also provide indications of other potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. In Q4 2015, the unemployment rate remained stable at 7%, approximately the same rate as in the previous quarter. The unemployment rate has been trending up in recent quarters. In Q4 2015, it was 1.1 percentage points higher than its low point of 5.9% in Q4 2007, but still 0.4 percentage points below the peak of 8.6% in the third quarter of 2009. The labour underutilisation rate was 13.8% in Q4 2015, slightly up from the third quarter and still two percentage points above pre-crisis levels in Q4 2007. The labour underutilisation rate is about twice the size of the unemployment rate.


One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) wealth. The OECD is working on these distributional aspects and preliminary results can be consulted here and here.

Overall, the fourth quarter of 2015 saw a slight drop for Canadian households’ material well-being with a contraction of income and consumption per capita alongside declining consumer confidence. Moreover, the upward trend in the household debt-to-income ratio remains a source of concern for financial stability. Notwithstanding developments in Q4 2015, taking a longer term perspective shows that income and consumption levels as well as financial net worth have recovered from the economic crisis and surpassed their pre-crisis levels. To fully grasp people’s overall well-being, one should go beyond material conditions, and look at a range of other dimensions of what shapes people’s lives

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our households’ economic well-being dashboard.

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