MNI REALITY CHECK: Canada Consumers In Second Wave Slowdown

Canadian consumer spending is heading into a slowdown as a second wave of Covid-19 discourages non-essential purchases, industry sources told MNI.

October's 12-month inflation rate due Wednesday is expected by economists to slow to a 0.4% pace from September's 0.5%, led by energy and travel services. On a monthly basis, prices are seen gaining 0.2% after September's 0.1% decline according to an MNI survey, led by homes and automobiles.

Retail sales growth will also slow 0.2% in September from 0.4% in August, and excluding autos will advance just 0.1%.

There could be even more downward pressure on consumers heading into winter, on the recent move to tougher health restrictions in some Canadian provinces. The surprising strength in housing this year is also at risk as some regions are forced to give up in-person open houses again.

Key points from industry leaders ahead of the inflation report due Wednesday at 8:30am and retails due the same time Friday from Ottawa:

• Home sales are likely to slow after spiking following the end of the spring lockdown.
• The second wave of COVID is hurting consumer confidence.
• Consumers are making fewer trips to ATMs to get cash, but are taking out a lot more each time.

Sean Morrison, Ontario Real Estate Association President:

Sales hit a record in September after the spring lockdown made it hard to do deals. "We are seeing a quite spike, but we are not speculating that spike would last." There is still some strength in people seeking bigger houses outside downtown residences, he said.

The effect of the second wave of Covid on housing depends on whether lockdowns force the end of in-person open houses. "If we move back into the scenario were we will doing only essential businesses again as opposed to the regular day to day businesses, so that would again probably result in a slowed real estate market for that time and as restrictions get lifted and people get out, that would increase again very similar to the first wave."

Underlying demand for housing remains strong, especially given the relatively good government stimulus measures, he said.

Brian Murphy, VP Research and Analytics of Canadian Black Book:

"From the end of the summer, until now, it would seem as if demand has flattened," said Murphy, who leads an online automobile buying website.

The second wave of Covid hurt consumer confidence over the last month and will likely continue until a vaccine is found and distributed. "The first thing to note is that sales year-over-year are down, after Q3, by well over 20%. This loss of revenue will obviously affect OEMs, retailers, and all players in the auto space, by forcing them to do business differently and not allowing them to invest in areas they had planned to and even forcing some to close."

Used car prices are at the highest since at least 2005, because of a reduced supply of new cars. There is also increased demand for cheaper used cars as the pandemic reduces the need to drive and creates uncertainty, he said.

The supply of used cars has also been curbed as individuals hold onto their leased vehicles instead of turning them in for new models, while companies do the same with their own fleets. Black Book is also shipping 20-30% of its inventory to the U.S. to take advantage of a relatively strong U.S. dollar.

Weak consumer confidence and high unemployment mean sales and prices will soften in coming months and not return to pre-pandemic levels until 2023 or until a vaccine is confirmed and widely deployed.

Steven Meitin President, Canadian Association of Secured Transportation:

Many businesses refused to accept cash earlier this year out of fear of spreading the virus, and an appeal since then from the Bank of Canada has led about half of those firms to switch back, Meitin said.

Still, consumers have opted to make far fewer trips to ATMs for cash, while taking out much larger amounts each time they visit.

About 6% of the Canadians don't use a regular bank, meaning about 2.25 million don't have regular access to electronic payments.

Consumer confidence appears mixed with people spending more on home improvements and less on going out to restaurants, he said.