TORONTO - The net worth of Canadian households fell by about $191 billion in the third quarter, and it's likely to have gotten worse as stock prices tumbled in the current three-month period.
Statistics Canada said Tuesday the 3.2 per cent decline in household net worth between July 1 and Sept. 30 was the largest percentage drop since the third quarter of 1998, when Canadian stock prices fell after the Asian financial crisis.
Bank of Montreal economist Doug Porter said that, although people don't tend to adjust their consumer spending in direct relation to their net worth, a decline in net worth will negatively impact the economy as ordinary Canadians tighten their wallets.
"As the stock market continued to weaken, it became obvious that it would have an effect, not just on consumer behaviour but also on business behaviour," Porter said in an interview.
"I do think it was the intense financial market turmoil we saw over the fall that really played a big role in tipping the global economy into a full-fledged recession."
Led by a drop in energy, mining and financial services stocks, the Toronto stock market has lost more than 40 per cent of its value since a record high above 15,000 in mid-June. Nearly half of the loss was in October, one of the worst months for North American stocks ever.
Porter added that the StatsCan numbers don't take into account the record-setting stock market declines seen in October and November, as well as a country-wide decline in housing prices.
"I hate to use a cliche, but I think in some ways this is just the thin edge of the wedge," Porter said.
"In other words, we'll actually see an even deeper decline when all the numbers are totalled for the fourth quarter."
Household net worth in the United States fell 4.7 per cent over the same period, its fourth straight quarterly decline.
StatsCan says the corresponding loss in directly held stock market equities, combined with the related loss in the value of pension and life-insurance assets of households, was the principal factor behind the drop in net worth.
The agency says slower growth in residential real-estate values and continued household borrowing also contributed to the decline.
Porter said declining net worth also affects Canadians' savings, and the fallout of the stock market crash could be felt for a long time to come.
"I think people are going to save more out of their current income and possibly in a more cautious way as well," he said.
"They might gravitate more to so-called safer investments or less volatile investments, but I think at the very least what we'll see is a shift in consumer behaviour."
