Canadian Households Get Left Behind As Real Disposable Income Falls

Canadian households are about to be hit with a demand limiting factor—income. Household disposable income growth is failing to keep up with inflation according to StatCan data. Even worse, once adjusted for inflation and the country’s booming population growth, it paints a dreary picture as debt problems surface. 

Household Disposable Income

Household disposable income is a household’s income after the net of mandatory transfers. Wages, and social security payments are examples of income included. Paying income taxes, and making social security contributions are examples of mandatory transfers. At a high level, it’s the income that’s left to spend after the government’s cut.  

Disposable income is one of the most important measures of an economy, impacting demand. If a household’s income rises but inflation and taxes rise faster, they’re left with less to spend. Less spending means less consumption, and since one person’s spending is another person’s income—it precedes an economic slowdown.  

Canadian Households Have Seen Impressive Growth At First Glance

Canada has printed impressive numbers when it comes to raw wage growth. The latest labor force survey shows the average hourly wages increased 4.2% in June. Household income also shows annual income climbed 6.0% to $2.7 trillion in Q1 2023. Both measures are sharply outperforming headline inflation, even loftier readings earlier in the year. However, that’s not disposable income. 

Canadian Disposable Income Is Failing To Keep Up With Inflation

Canadian households are seeing much less growth after adjusting for transfers. Disposable income climbed a more conservative 2.6% to $1.56 trillion in Q1 2023. Annual growth was even below CPI’s lower-than-expected reading in June. To put it bluntly, real disposable income is falling for Canadian households. However, as Vince Offer (aka the “Shamwow Guy”) would say, “but wait, there’s more!”

Canadian Households Are Being Left Behind

The annual percent change of household disposable income, adjusted for inflation and population growth. 

Source: Statistics Canada; Better Dwelling. 

Canada’s Households Are Falling Behind, Hidden by Population Boom

Canada’s booming population is obfuscating just how bad household income is moving. By the end of Q1 2023, annual growth was over 3%—continuing a trend of robust growth. Adding more economic units helps to increase the aggregate total of income and GDP. 

Even if the measure was falling, the aggregate can rise by just adding more people than the decline. The issue at the highest level should be obvious at this point—annual growth for the population (+3%) is higher than disposable income (+2.8%). 

Adjusting for population, household disposable income showed a 0.5% decline over the past year. Add inflation for Q1 into the mix, and disposable income dropped 4.8% on a per capita basis.  

Canada’s per capita decline isn’t a surprise to anyone that’s watched the explosion of debt use. Debt is future income used today, borrowing future income to drive current consumption. With the highest level of household debt of any G7 country, that borrowed growth needs to be repaid at some point.

The OECD previously warned the country’s debt problems would put households behind. The intergovernmental organization notably forecasted that Canada’s per capita GDP growth would be the lowest of any advanced economy going forward. That’s the spot Greece held during the Great Recession, but Canada is expected to hold it a little longer—nearly 4 decades. It’s starting to seem like a less outrageous forecast as things like real disposable income began to fall behind.