Canada’s Luxury Index is through the roof

Numbers season is over but good inequality data is still missing. January sees us regularly bombarded with a whole range of economic statistics about the previous year. GDP growth: likely 1.7%, low but looking brighter for next year. Unemployment: 7.2%, low but lots of workers leaving the job market altogether as the employment rate stagnates. Inflation: 1.2%, low but deflation risks under control. “Low, but” is the theme of the year for the average Canadian. For the super-wealthy, however, the story is quite different. Indeed, if Canada had an official Luxury Index or reliable data on inequality, the numbers would be through the roof! Lacking either, this post will be a seriously light-hearted stab at proxy measures that show just how well Canada’s crème-de-la-crème are faring in our very unequal recovery.

Inequality is not measured with nearly the same zeal as other important economic variables – especially when it comes to wealth, rather than merely income (though we should shortly receive relatively new data on the distribution of wealth from Statistics Canada; for now, some evidence of recent trends is visible in the a recent article by the PEF’s Armine Yalnizyan). In addition, the income-based measures of inequality that we do have are biased downward. For example, they do not include capital gains and other streams of income that come from accumulated wealth. This is a particularly important omission since our much-vaunted “recovery” is being driven by rising asset prices and profits as well as asset concentration rather than job growth and shared well-being. At the same time, governments have cut taxes in ways that make the tax system more regressive and cut public spending, the combination of the two exacerbating inequality even more.

On the other end of the spectrum to cuts in public services, luxury spending has grown substantially in recent times. A Luxury Index that tracks this trend would be an interesting proxy for inequality – one that if anything undervalues its true extent as the rich spend proportionately less on consumption than the rest of us simply because they have so many resources.

Some indices of luxury do exist. The S&P Global Luxury Index tracks the stock prices of 80 of the largest companies in the luxury goods and services sector. Its value has ballooned since the crisis. Over the past five years, it has outperformed the benchmark S&P 500 by almost 100%, averaging almost 35% annual returns compared to 19% for the benchmark index. While this is an index of how well companies that cater to the 1% are doing, we can take a look at some representative companies, sectors and goods to get a picture of the unseasonably-good times being enjoyed by Canada’s wealthy.

For starters, 2013 was a good year for Canadian sales of luxury cars, long a marker of social status. While overall Canadian car sales rose by four percent, many luxury makers saw disproportionately larger increases. Growth in elite sports cars such as Porsche (22%) and Maserati (32%) far outpaced the overall market. The group that owns Jaguar and Land Rover reported a 30% increase in sales. Bentley, on the luxury end of the luxury sector, saw a 16% sales increase in Canada.

Sales of luxury consumer goods are on the upswing too. Holt Renfrew, Canada’s largest luxury retail chain, claims to have had double-digit sales growth since 2009 and other luxury retailers are confident in the future growth of the sector: The Bay has decided to introduce high-end Saks Fifth Avenue stores in Toronto and other large Canadian centres. Individual brands are also doing extremely well. For example, Hermes, one of the world’s leading makers of luxury apparel, saw Canadian sales increase by 28% over the past financial year. Amongst alcohols, sales of premium wines and spirits are growing twice as fast as more moderately-priced equivalents (latest available data from the LCBO for 2012, with the same forecast for 2013).

Last but not least, luxury real estate also boomed in 2013. Remax reports that luxury home sales grew substantially in three-quarters of major Canadian markets. Standbys like Vancouver, Calgary and Toronto saw the number of top-end properties sold increase by 36%, 34% and 18% respectively. Smaller centres also witnessed explosive growth: 32% in Edmonton, 26% in Winnipeg and 31% in Hamilton-Burlington. In fact, annual luxury home sales have doubled to tripled in many cities in the five years since the crisis of 2007-8. Realtors add that the luxury home clientele is almost exclusively domestic; even Vancouver, long perceived as inundated by wealthy buyers from Asia, sees only 5% of sales go to foreign investors.

This barrage of numbers shows that a Luxury Index, if actually constructed, could have potentially seen sizeable gains in 2013, disproportionately larger than those observed by the economy as a whole and Canadians underneath the top rungs of the income ladder. While hardly precise, together these numbers point to the fact that the gains from economic growth are going disproportionately to those at the very top of the income distribution who can afford the Bentleys, Louis Vuitton purses, yachts and mansions that are selling so well. In comparison, growth, if any, in median real wages, median after-tax incomes, or any other measure that reflects how the vast majority of Canadians experienced 2013 was paltry. Since wealth is more unevenly distributed than income by several factors, asset-based growth only compounds inequality and gives those at the top the spending money that drives luxury consumption.

December’s job figures in particular brought home the fact that it hasn’t been a banner year for the average Canadian household. Employment is stagnant, jobs remain scare, and good quality jobs all the more so. Most of us are in the shadow of a promised recovery that always seems just around the corner but never quite materializes. Rather than jobs, Canada’s economy has generated asset-related gains whose claimants are disproportionately the wealthiest.

Lastly, the runaway growth of luxury spending not only gives a more tangible picture of the widening gap between the ultra-rich and the rest, it may also help in small part explain some of the continued imbalances in the Canadian economy, notably the rise in household debt. The dominant myth that anyone can become rich if they just try hard enough and a popular culture that revels in gratuitous opulence mean that many of us get stuck trying to play a game of catch-up with the rich. The further the wealthy move away, the more we make attempts to move along the wealth scale with them. The problem is that, thanks to an increasing concentration of wealth, the rich have the means to afford their luxury, while the rest of us simply do not. The other side of the consumption habits of the 1% are the maxed-out credit cards, unaffordable mortgages and increasingly unmanageable debt loads of the 99%.

In the absence of reliable data on inequality, tracking an imagined Luxury Index demonstrates the wedge of inequality that is increasingly being driven between a super-wealthy elite and the rest of us. The explosion of luxury is the shiny veneer that covers an increasingly ugly inequality.