| Economic Research & Analysis—Publications |
|
| Back to: Contents | Economic Research | Finance | Main Government |
 |
| The Economy 2004- Newfoundland and Labrador |
|
| previous | next |
Consumer Spending |
|
Consumer Spending
and Why it is Important |
|
|||||||||||||||||||
| Consumer spending refers to the purchase of goods and services by households. It is the largest component of GDP and has been one of the main contributors to real GDP growth in recent years (second only to exports). Increased consumer spending per capita generally signals a rise in the standard of living, however, on the downside it may also point to rising household debt. A substantial portion of government revenues including HST, as well as gasoline and tobacco taxes are dependent on consumer spending. | ||||||||||||||||||||
|
Recent Trends in Consumer Spending |
||||||||||||||||||||
|
Consumer spending in Newfoundland and Labrador has been strong over the last seven years. In 2003, consumers spent an estimated $9.5 billion compared with just over $7 billion in 1996. After adjusting for inflation, average annual growth was 2.8% per year. In addition, spending per person has grown more in this province than any other province. Between 1996 and 2002, real spending per capita grew by 28.5%, more than 12 percentage points higher than the national average. In 2002, real spending per capita was 85.7% of the national average, compared with 77.6% in 1996. |
||||||||||||||||||||
|
Factors Contributing to Growth |
||||||||||||||||||||
The increase in consumer spending was due to a number of
factors:  Increased disposable
income—real disposable income grew by 15.7% on a per capita basis
between 1996 and 2002, the second highest growth among the
provinces. Lower savings rates—savings rates have declined over the last six years. In
this province rates have fallen from 9.6% in 1996 to 1.3% in
2002. The rate for Canada in 2002 was 4.2%. Growing use of consumer
credit—expanded use of lines of credit, credit cards and
borrowing against home equity have fuelled spending. Low interest rates—low
rates are keeping debt servicing ratios manageable. Pent up demand—spending
on durables and semi durables languished during the early 1990s.Consumer confidence—employment gains, reasonable borrowing terms, and
general optimism about the economy have raised consumer
confidence. |
||||||||||||||||||||
|
Demographic change—while
overall population declined between 1996 and 2002, the 45 59 age
group expanded by 19,000. This age group tends to have higher
incomes and spend more on consumer items. |
The lack of data on household financial stability at the provincial level limits current analysis. The most recent data (1999) indicated that Newfoundland and Labrador had one of the lowest ratios of debt to disposable income in the country, due mainly to the high rate of home ownership, and therefore, low amount of mortgage debt. Excluding mortgages, this province had the highest ratio of debt to disposable income in the country in 1999. This situation has probably deteriorated since then, given the propensity to accumulate short term debt. Also disturbing is the trend showing personal bankruptcies per 1,000 adults at a much higher level than the national rate. | |||||||||||||||||||
|
Outlook |
||||||||||||||||||||
|
Growth in consumer spending is expected to continue, albeit at
a more moderate pace. Real consumer spending is expected to
grow by 1.2% per year over the 2004 to 2007 period, compared
with 2.8% per year in the last seven years. This outlook is
predicated on lower growth rates for
employment and personal
income, and softening consumer demand. How this outlook plays out will depend in part on debt servicing costs. The Bank of Canada, and others, feel that Canadian household debt servicing ratios are acceptable because the higher debt is being mitigated by increased incomes and lower interest rates. However, some analysts feel that households are vulnerable to higher interest rates, and any significant increase could choke off spending. |
||||||||||||||||||||
 |
||||||||||||||||||||
|
Consumer Spending Photo Credit: Hickman Saturn Saab Isuzu Finnigan's Dining Room Morgan's Furniture |
||||||||||||||||||||
| previous | next |
| back
to contents |
|
|
|
| This information was current as of March 16, 2004. | |
|
|
| [Government Home | Finance Home | Economic Research & Analysis Home | Disclaimer] | 
|
