Quarterly Bulletin on Insolvency Statistics
3^rd quarter 2005

Office of the Superintendent of Bankruptcy
October 2005

Recent Economic Developments

Economic growth in Canada has been sound since the beginning of the year. After a 1^st quarter annualized increase of 2.1%, GDP growth reached 3.2% during the 2^nd quarter. If domestic demand (consumer expenditures, business investment, and government expenditures) is still the main driver behind Canada's economic growth, the 2^nd quarter's performance is mainly due to an increase in net exports. On a regional basis, economic growth is still uneven with Western provinces and, to a lesser extent, the Atlantic region performing better than either Ontario or Quebec (Table 1). This situation is, without a doubt, attributable to the rise in commodity prices, crude oil prices in particular, which has a positive impact on the exporting provinces of the West and Atlantic regions, to the detriment of Ontario and Quebec . Furthermore, with economies that are relatively more centered on the manufacturing sector, Ontario and Quebec have to compose with ever-increasing competitive pressures from countries such as China . Finally, although the exchange rate was on average US$0.83 during the 3^rd quarter of 2005, it seems that the negative impact of a high currency is fading, as evidenced by the recent increase in exports.

Annualized growth in employment was of 1.1% for the 3^rd quarter of 2005. Employment was up in 4 of the 6 regions. Quebec was the leader in job growth with an increase of 3.5%, followed by British Columbia (1.3%), Ontario (0.5%), and Alberta (0.4%). The Atlantic (-1.3%), as well as Manitoba/Saskatchewan (-0.3%) were the only regions that experienced a decline in employment. Because of movements in the labour force, the national unemployment rate remained at 8.6%, a level not seen since the beginning of the year 2000.

Growth in consumer and mortgage credit, at an annualized rate of 12.3% and 8.8% respectively, remained strong during the 2^nd quarter of 2005. Meanwhile, personal disposable income increased by 4.3% but still is lagging credit growth. As a result, the debt-to-income ratio followed its upward trend for a 17^th consecutive quarter, and reached 117.7%. Low interest rates can probably be held in part responsible for this situation. For instance, the 5-year mortgage interest rate was on average 5.8% in the 3^rd quarter of 2005, a 0.1% decrease compared to the previous quarter. However, we can expect interest rates to rise in the near future since the Bank of Canada has already lifted its overnight rate twice in the last two months and is giving signs that more rate hikes are on the way. It is likely that the gradual rise in interest rates will limit the increase in credit demand on the one hand, and exert increasing pressure on highly indebted consumers on the other. Moreover, the Consumer Attitude Index recorded a significant drop of 15 points in the 3^rd quarter of 2005 to reach 107.9, its lowest level since the 4^th quarter of 1998. This setback in consumer optimism could curb their demand for credit.

Recent Increase in the Number of Insolvencies

Despite the continuing increase in consumer indebtedness, the overall good economic conditions continue to limit the growth in insolvency. In the 3^rd quarter of 2005, total insolvencies have increased by 1.2% compared to the same quarter in 2004, after registering a 4.5% increase in the previous quarter (table 2). On the whole, since the beginning of the year, insolvencies progressed by 0.7%. During this period, consumer insolvencies increased by 1.4% while business insolvencies continued their decline with a 6.1% decrease. On the consumer insolvency front, we should note that the 6.1% increase in proposals was a great deal higher than the 0.4% increase in bankruptcies since the beginning of the year. For business insolvencies, bankruptcy filings fell by 5.8% and proposals by 7.5%.

At the regional level, total year-to-date filings increased in the Atlantic region (10.9%), Ontario (3.4%) and in Manitoba/Saskatchewan (3.5%). The other 3 regions recorded a decline in total filings of 11.7%, 2.1%, and 1.0% respectively for Alberta , British Columbia and Quebec. Consumer insolvencies were increasing in 4 of the 6 regions, the most significant increase being in the Atlantic region (11.6%) whereas Alberta (-10.5%) registered the largest decrease. Business insolvencies were decreasing in 4 of the 6 regions, with Alberta (-18.2%) boasting the most significant drop and Ontario witnessed the largest increase (8.7%).

Since January 1^st, insolvencies by industrial sector have increased in 4 of the 16 sectors (Table 3). The strongest increase was in the Finance, Insurance, and Real Estate sector (4.7%) while the Information and Cultural Industries sector (-25.2%) showed the largest decline. The Construction (1,223) and Retail Trade (994) sectors are those that produced the largest number of new filings since the beginning of 2005.