Deputy Governor Lawrence Schembri explains how household spending has changed because of COVID-19. He says the Bank expects the recovery to have two phases, with an initial bounceback from reopening giving way to a recuperation period of gradual and bumpy growth.
Watch Deputy Governor Schembri speak to the Greater Saskatoon Chamber of Commerce via webcast.
Households are spending money differently
The economic shutdown caused a sharp drop in jobs and confidence. Many stores closed and services weren’t available.
Not only are Canadians spending less now, they’ve also changed what they are buying and how they are shopping:
- People are buying more necessities like food, cleaning products and personal care products.
- Spending on items like cars, shoes and clothing—all of which are harder to buy with strict containment measures—is down.
- Spending on entertainment, travel and many services like haircuts came to a standstill.
- Online sales are up 40 percent from 2019.
- Home sales were hit, as listing and viewing homes became difficult.
These changes are affecting prices and how we measure inflation. The basket of goods and services that reflects purchases in normal times isn’t representing how Canadians are spending money right now.
The first stage of recovery: reopening and a partial bounceback
Recovery is already underway in some sectors. As the economy gradually opens up, employment, income and spending should rise.
Consumer confidence is rebounding. Purchases that people delayed because of the pandemic shutdown are driving sales of items such as clothes, personal care services and cars. Housing resales have already picked up in major markets.
Canadians are taking on debt more slowly than before the pandemic, in part because they are spending less. They have also taken advantage of payment deferrals on mortgages, credit cards and other loans.
Recent data indicate that a recovery has begun and that a more severe outcome has been averted, thanks to an extraordinary set of actions taken by the federal and provincial governments and the Bank of Canada.
The second phase: a slow and gradual recuperation
After the initial phase, the speed, strength and breadth of recovery are harder to predict. The economy will be affected by what happens with the virus, jobs and incomes, and confidence.
Job growth will be uneven. The hardest-hit sectors—such as restaurants and retail—typically have high turnover, which may make it easier to rehire workers. Still, the recovery may be slower in energy-producing regions that were already struggling.
Women make up the majority of workers in services, so the closures have affected them in particular. Their return to work may also be more difficult because of a lack of childcare.
Some areas, such as travel, in-restaurant dining, and cultural and sporting events, will face a much slower recovery. Since new Canadians contributed to stronger housing markets before the pandemic, less immigration may cause a slower recovery for housing.
The uncertainty around this recuperation stage is extraordinary and points toward a recovery that will be gradual and long-lasting as this uncertainty slowly dissipates and household confidence is restored.