National Net Worth Up… But Widespread Job Losses Around The Corner?

There’s a Yin and a Yang to Canadian economic news these days.

The national balance sheet was released by Stats Canada on June 12 and, while non-financial assets (mainly real estate) rose 1.2%, net financial assets were up 6.2% mostly due to growth in mutual fund and pension asset values. That’s the good news.

According to the report, “The larger increase in the value of financial assets pushed the ratio of financial assets to non-financial assets up to 125.7%, the highest level since the second quarter of 2002. Financial assets represented 55.7% of total household assets at the end of the quarter.”

Note that the ratio of total household debt to total assets declined to 17.8% in the first quarter as well, which signifies a continuing general downward trend that began in 2009, said the report. “Since then, asset prices have rebounded significantly, but the ratio of household debt to total assets has not yet returned to pre-recession levels.”

However, the Bank of Canada had some stern warnings for Canadians as it published its Financial Systems Review (FSR) last week. Governor Stephen Poloz assessed the risk to the economy in his opening statement upon release of the report, “The vulnerability associated with household indebtedness is edging higher, and the overall risk to financial stability in Canada is slightly higher.”

The FSR report itself goes on to warn: “In the event of a deeper and more widespread shock to incomes, highly indebted households with limited liquid financial assets could have difficulty servicing their debt.”

Bottom line: In uncertain times, reducing debt and increasing savings count.