MONTREAL ― To look at Canadians’ spending habits, you’d think the COVID-19 pandemic was over, and the economy was back at top speed.
But the sudden return of good times might be a temporary illusion created by government income support, delayed debt payments, and households draining their savings.
In an early estimate of June sales numbers, Statistics Canada said Tuesday that retail sales jumped 24.5 per cent from May’s levels, which would bring spending back to pre-pandemic levels.
And consumer spending was actually a few percentage points higher at the beginning of July than in the same period a year earlier, TD Bank said in a report issued Tuesday.
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Not all industries are back on track, of course ― think airlines and hotels ― but others have taken up the slack, with spending up on used cars, tradespeople/contractors and pharmacies/personal care.
That’s despite the fact that, as of June, there were still 1.8 million fewer jobs in the country than there were before the pandemic, and in all some 3 million people were still earning less from work than they were at the start of the year, according to StatCan.
“Spending patterns are, on balance, encouraging,” TD Bank senior economist Brian DePratto wrote.
“However, caution remains warranted as employment is still well below pre-pandemic levels, the risk remains of a second wave, and direct income support measures are set to begin expiring early this autumn.”
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The federal government’s Canada Emergency Response Benefit (CERB) put slightly more money into the hands of Canadians than they were earning before the pandemic, according to a recent estimate from Capital Economics. It pays benefits for a maximum of 24 weeks, and the earliest recipients will run out in October if they don’t find work.
Meanwhile, an estimated 700,000 Canadian households have deferred payments on their mortgages. Without some kind of extension, those deferrals are scheduled to come to an end this fall.
And a growing number of Canadians are eating into their savings to cover their costs, credit rating agency TransUnion said in a report Tuesday.
Some 13 per cent of consumers ― one in eight people ― are using their RRSPs or TFSAs to help pay bills, up from 4 per cent at the start of the pandemic, according to TransUnion’s survey.
Some 18 per cent of Canadians are benefiting from some sort of “payment holiday” on their debts, with the most common products being credit cards, mortgages, personal loans and utility payments, in that order, TransUnion said.
All of this comes as Canadians are turning cautiously more optimistic about their personal prospects. The percentage of Canadians who say they don’t expect to be impacted by the pandemic rose to 55 per cent in the latest survey, up from 37 per cent at the start of the pandemic.
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“This may indicate that barring a sudden reversal, the worst may be over in terms of consumers affected by the pandemic,” TransUnion said in a statement.
But not everyone is sure of that. Some economists are pointing out that a full return to normal can’t happen until the pandemic is over.
“Government restrictions will be in place for an extended period of time in one form or another, meaning the economy can’t fully bounce back,” CIBC economist Royce Mendes wrote in a client note Tuesday.
“If government income support begins to wane, the pace of recovery might slow as the true effects of an elevated unemployment rate begin to be felt.”