Has Canada's economic rebound already plateaued?

Consumer spending ran out of steam in July, but there is little cause for concern – yet

Has Canada's economic rebound already plateaued?

An August 27 Financial Post story made the case that Canada’s economic recovery “is already flagging.” But that may not be the case. Not yet, anyway.

Citing recent work by RBC economist Colin Guldimann, the Post’s Ydallah Hussain argues that the CERB- and CEWS-fuelled increase in consumer spending seeing from May to July “appears to have plateaued.” That’s true, but it’s only part of the story.

Guldimann’s recent work for the RBC’s COVID Consumer Spending Tracker found that retail spending showed little growth between July 14 and August 4, but it also showed that the level of household spending during that period was between 17.4 percent and 20.2 percent higher than it was for the same timeframe in 2019. Hussain neglected to mention that between August 4 and August 11, household and department store/specialty retail/electronics/hobby spending increased by 5.5 percent and 3.3 percent, respectively.

Additionally, credit and debit card spending has been steadily improving since July 7. As of August 11, credit/debit expenditures were 5.5 percent higher compared to a year earlier. Increased credit card debt isn’t necessarily a sign of strength, but Canadians are certainly still injecting money into the economy.

The idea that Canadians are putting the brakes on spending is also refuted by the growing insanity of the nation’s housing market. CREA said more homes were sold in July 2020 than in any other month in the last 40 years. Those sales are expected to moderate as the country works its way through the end of CERB and the true impact of COVID-19 on Canadian workers makes itself felt, but they were also expected to tank earlier on in the crisis. A lack of supply and soaring prices may limit sales and further price growth, but demand and consumer confidence in much of the country show little sign of collapsing.

Bank of Montreal chief economist and managing director Douglas Porter says it is still too early to be passing judgment on Canadians’ spending habits. The true measure, he says, will come this week, “when we will get a flood of data for August,” including vehicle sales, home sales in certain key cities and, most important of all, the month’s employment figures. A similarly robust wave of data from the U.S. will also provide further clarity on Canada’s future trade prospects.

“Prior to these official numbers, we are essentially looking at high-frequency data, whose reliability isn’t entirely proven,” Porter told Mortgage Broker News by email.

“Our view is that the recovery likely kept grinding ahead in August, albeit at a slower pace than in June and July,” Porter continued. “But, simply, we think it’s premature to say the recovery has ‘stalled’, at least until we see some August data.”