Canadians are flush with cash and ready to spend.
Quarterly economic activity figures released on Tuesday showed that consumers were driving the nation’s economy back to growth over the summer, when most COVID restrictions were lifted. An increase in household consumption fueled a faster-than-expected 5.4 percent annual expansion in the third quarter – a sharp comeback from a disappointing first half, when the country’s expansion stalled amid a third wave of shutdowns.
While companies continue to struggle with the aftermath of the pandemic, the data show that households are in strong economic shape to lead the recovery.
Consumer spending rose 18 percent year-on-year in the three months ending September, the second-largest increase back to the early 1960s, with the exception of last year’s increase. Most of these expenses were on services, many of which had been closed to many Canadians earlier in the year.
“This was the reopening quarter,” Veronica Clark, an economist at Citigroup Global Markets Inc., told BNN Bloomberg TV.
Households seem to have plenty of financial power to continue using. Wage compensation has already exceeded pre-pandemic levels, although public transfers remain high – accounting for 22 per cent of Canadian household income, up from an average of 17 per cent in the decade before the pandemic.
Canadians cannot use income gains fast enough, with savings growing at a record high.
Households have added $ 319 billion (US $ 250 billion) in new savings since the start of the pandemic – an amount that would typically have taken them about a decade to accumulate.
What Bloomberg Economics says …
“The outlook is still bright, provided vaccinations remain effective against both the delta variant and the risk of a new omicron wave. Consumer spending on services may not hold the same kind of momentum in the short term, but still have room to run.”
Consumer consumption helps to offset weaknesses elsewhere.
A drought in western Canada, global supply bottlenecks, a prolonged shutdown and chip shortages hampering the automotive sector have all contributed to a weaker-than-expected recovery. Total production in the third quarter remained 1.4 percent below the level in the last quarter of 2019, just before the pandemic began. Statistics Canada also revised its second-quarter production estimate to a decline of 3.2 percent from an initial estimate of a decline of 1.1 percent.
Business investment remains weak, while growth in the housing market begins to slow. Exports rose in the third quarter after a sharp decline earlier in the year, but remain well below pre-pandemic levels. To underscore the uncertainty, many companies met the growing demand by pulling down inventories instead of increasing production, the data shows.
The emergence of the omicron coronavirus strain and the recent floods in British Columbia only increase the risks to the outlook.
But things are starting to pick up speed. An early reading for October shows that the economy continued to increase growth over the summer, a 0.8 percent increase over the month, according to Statistics Canada.
Overall, the pace of the recovery is almost certain to reinforce investors’ views that the Bank of Canada is about to begin a series of rate hikes, with markets pricing five hikes over the next 12 months. While growth in the third quarter beat economists’ estimates, growth was in line with the central bank’s forecast of 5.5 percent annual growth.
“This recovery, combined with the growth in spending on services and the still high level of savings, suggests that the economy had a solid foundation heading into winter,” said Doug Porter, chief economist at the Bank of Montreal, in a report to investors. . .
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