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Message From The Editor
Heads up…Rising Business Insolvencies this fall
According to a story in the Financial Post on November 23, 2018 with information from Bloomberg, business insolvencies in Canada climbed at the fastest pace since 2012 this fall amid higher borrowing costs and of course, our boat and engine dealers use credit pretty extensively in their businesses.
The story went on to say that higher interest rates are hitting businesses that may also be suffering from a decrease in consumer spending. The herd just always seems to have a feeling about which way to run and it seems that households are diverting more money toward servicing their debt. Our recent record low interest rates were intended to stimulate the economy and that worked very well, but the consequence was higher levels of household debt.
Consumers are now sensing choppy waters ahead and it's time to pay that debt down.
We in the boat business are suffering the double whammy of this situation and the 10% retaliatory tariffs that seem to be here, at least until the NAFTA / USMCA agreement gets settled. Looks like that will not happen until the New Year - maybe well into the New Year given that the democrats took back the House of Representatives in the U.S. Mid-term elections and said they didn't like Trump's deal.
To help put the Financial post story into perspective, it said 826 companies filed for insolvency in the three months through September, compared with 790 in the same period a year earlier according to the Office of the Superintendent of Bankruptcies that reported last Friday. Quebec, Alberta and Manitoba saw the biggest increases. By sector, retail trade, transportation, construction and manufacturing were among the hardest hit. Insolvencies jumped 17.5 per cent in September, the last month of the quarter.
Actually, interest rates have been on the rise since mid-2017, and yet aside from a 0.1 per cent increase earlier this year, insolvency filings have fallen every quarter since 2015 on a year-earlier basis, so this number is concerning.
The total number seems small to me, particularly if you consider how many companies are in business in Canada. To have between 790 and 826 companies file for insolvency does not seem alarming and I would challenge the story's authors on their conclusion that interest rates are solely to blame.
However, they quoted Chantal Gingras, head of the Canadian Association of Insolvency and Restructuring Professionals, which represents about 1100 trustees as saying that this was concerning to that organization.
The message to our readers would seem to be to be aware and to exercise caution until we see a more sustained trend. This was only the sixth increase in quarterly business insolvencies since 2012. The average rate over that period has been a decline of 4 per cent.
Andy Adams, Editor aadams@kerrwil.com
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