Have Canadians become zombies? I don’t mean corpses that mysteriously reanimate and mope about lethargically searching for nourishment in the form of human brains. Rather, I’m referring to a sort of reformed shopper who buys only what she needs. A zombie consumer isn’t completely dead; She still dutifully arrives at the supermarket every week and strolls the produce isle. She occasionally buys clothes, hits the pub—and heck, she might even turn out for the latest X-Men vehicle. But she decidedly lacks the vigor she exhibited during the recent years when she succumbed to wanton profligacy. Her lone delight is phoning lenders each month to arrange additional payments on her outstanding debts. And although the reasons behind the transmogrification of Hollywood’s zombies are often vague and mysterious (mutated viruses, radiation from space probes, etc.), the zombie consumer’s ailment is readily understood: She’s broke.
Zombification of any kind brings inconvenience not only for those afflicted, but also a great many others. Yale University professor Stephen Roach coined the phrase “zombie consumer” to describe Americans. “Afflicted by historically high unemployment, massive under-employment, and relatively stagnant real wages, while burdened with underwater mortgages, excessive debt, and subpar saving, U.S. consumers are stretched as never before,” he wrote in one recent column. “Notwithstanding government life-support initiatives, U.S. consumers seem headed for years of retrenchment.” America’s walking dead pose serious dilemmas for anyone wanting to sell to them. Roach claimed the financial moldering of American citizens means Asia’s export-driven economies will soon have to look to their own citizens to pick up the slack. It’s also one reason U.S. President Barack Obama is so eager to run up his nation’s already impressive tab with global creditors. Someone has to distract from the putrefying vapours emanating from Yankee households.
It also helps explain why many American retailers (Target, Marshall’s, Nordstrom etc.) are suddenly more interested in our country. After all, there’s far less evidence of decomposition among Canadians. Although elevated by the standards of recent history, our unemployment rate is envied by other countries. We’re not defaulting on our mortgages and credit cards in droves. Our governments seem flush, at least when compared to others across the developed world. Canadians largely continue to behave as if the recession never happened.
Looking more closely, however, there are signs that much Canadian flesh is also acquiring a somewhat necrotic hue. In mid June the Certified General Accountants Association of Canada released its annual review of consumer finances. It’s among the most comprehensive and reliable studies of its kind available in this country. (It lacks some of the obvious commercial self-interest found in other studies of its kind.) The title loudly trumpets CGA-Canada’s thesis: A Driving Force No More: Have Canadian Consumers Reached Their Limits? As with many such titles, the question is rhetorical.
According to CGA-Canada, the good news is that Canadians have slowed their accumulation of debt. But the aggregate amount outstanding still grew in 2010 and the first quarter of this year, reaching a record high of $1.5 trillion. If this were spread across the nation’s population, a typical nuclear family would owe more than $176,000. “The slowdown in the pace of household debt expansion was not strong enough to noticeably improve household balance sheets,” CGA-Canada observed. But of course it’s not: some households exude financial vigor, while others exhibit canker and mildew.
CGA-Canada probed further to identify those households most at risk. Its research found that single-parent families and households earning less than $50,000 a year are far deeper in hock on average than other groups. Indeed, CGA’s survey determined that a significant number of Canadians are precariously lose to the edge: one in ten said they’d have difficulty coping with an unexpected expense of just $500. One in five wouldn’t be able to afford a $5,000 charge even using their line of credit or credit card. This implies that even the slightest of economic shocks could leave many Canadians moping toward the cemetary; for some, the extended run-up of consumer debt may be near its practical limits.
Canadians apparently recognize this. Last month the Boston Consulting Group published the results of a 20-country survey. Some 44% of Canadian respondents reported they intend to spend less this year than they did in 2010, while a similar amount indicated their spending will be flat. “Canadian households are currently stretched to the max and are holding record levels of debt,” BCG reported. “Between 2008 and the end of 2010, the average Canadian household grew its credit card balance by 10%, while the average U.S. household reduced its credit card balance by 18%.” But Canadians did hone their bargain-hunting skills, and BCG claims they’ve also adopted a more conservative mind-set.
We’ve heard that before. Earlier this year, I wrote a piece examining why Canadians seemingly can’t stop spending. As I pointed out, during the last several years consumer surveys consistently find that Canadians are bent on curtailing their spending and paying down debt. While those intentions may be sincere, they’re at odds with the ongoing rot evident in household balance sheets. Although I won’t repeat my rather prosaic explanation here, I concluded that a mix of behavioural traits, financial stresses in some households, and government policy all likely contributed.
The most important question, still unresolved, is whether Canadians will willingly modify their financial behaviour (perhaps after witnessing the zombification of their southern neighbours) or whether they will have frugality forced on them by events beyond their control. In this my feature took a relatively dim view: That Canadian consumers would likely remain on their current course until the last possible moment. The recent slowdown in debt accumulation raises faint hope that I was wrong to despair: perhaps Canadians will ignore today’s dirt-cheap credit and begin repairing their balance sheets, in effect zombifying themselves. That would be preferable to a financial crisis. Still, I see little reason for cheer. Large portions of our population are vulnerable, as Bank of Canada governor Mark Carney is fond of pointing out.
Zombie consumers would be extraordinarily bad news for many Canadian retailers, particularly those selling discretionary goods. It would also imply slower economic growth and, if household austerity became sufficiently extreme, might even lead to recession. And it would also likely derail any deficit-fighting resolve that may exist in Ottawa and our provincial capitals.
In popular cinema, a “zombie apocalypse” occurs when large numbers of the undead begin preying on the living. Tales of such events follow a familiar arc: the zombie rabble multiplies quickly, overwhelming efforts by military and law enforcement to contain their antisocial behaviour. Eventually brave stalwarts regroup and tame the undead invaders using shovels and pump-action 12-gauge shotguns. (To help Americans manage such trying times, the Center for Disease Control and Prevention has prepared this helpful guide.) If Canada’s fate is to suffer a consumer zombie apocalyse, sanctuaries will doubtlessly include auto dealerships and luxury good resellers. The rub may be that they’ll be locked and available for lease.