credit and debt
UNEMPLOYMENT AND CREDIT DELINQUENCY: NATURAL BEDFELLOWS In Canada, declining unemployment has helped to stabilize credit defaults—just one reason why it’s important to keep our jobless rate low.
Before considering changes in the trajectory of credit delinquencies it must be noted that in Canada, delinquency rates tend to be very low. For home equity lines of credit and regular lines of credit, delinquency rates are below 1%; for credit cards and auto loans, they are below 2%. Additionally, the prevailing rate of unemployment—a proxy for whether borrowers are earning a steady income or not (and hence have some ability to repay their debts or not)—tends to move pro-cyclically with delinquency rates.
This is an important point, because in Canada the unemployment rate has been trending downwards for much of the past decade, thereby keeping delinquency rates in check. At the end of 2018, however, when the Canadian unemployment rate ticked up ever so slightly from 5.8% to 5.9%, so too did auto loan and credit card delinquency rates. Though they were small changes, it is a reminder of how important robust economic fundamentals are in the context of servicing our debts.
AS ONE GOES, SO GOES THE OTHER: UNEMPLOYMENT AND DELINQUENCY RATES
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2.5%
16.0%
14.0%
2.0%
1.51% 1.76%
12.0%
10.0%
1.5%
8.0%
1.0%
5.9%
6.0%
0.61%
4.0%
0.5%
2.0%
0.15%
0.0%
0%
Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q2 Q3 Q4 Q1
2013
2014
2015
2016
2017
2018
HELOC
CREDIT CARD
AUTO
LOC
CANADIAN UNEMPLOYMENT RATE
SOURCE: MORTGAGE & CONSUMER CREDIT TRENDS, CANADA MORTGAGE & HOUSING CORPORATION; LABOUR FORCE SURVEY, STATISTICS CANADA
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