MNI INTERVIEW: Canada Tracks Where 28% of Q2 Income Saved Goes

Statistics Canada is tracking the mystery of what households will do after saving a record 28% of income including massive government relief payouts during the pandemic lockdown, a top official told MNI.

While second-quarter GDP mirrored flash estimates for the annualized decline around 40% including a drop in worker paychecks, the report Friday showed disposable income up 11% thanks to government transfers. The savings rate jumped even more, from pre-pandemic levels closer to 3%, and that hoard of cash may drive output back to normal faster than central bank and private estimates for a recovery needing two years or more.

"It's either holding on to money because of uncertainty or just the ability to spend that income" with so many stores closed, Greg Peterson, assistant chief statistician for economic statistics, told MNI late Friday.

Monthly retail sales figures have already rebounded to pre-pandemic levels led by a return to auto dealerships. "Of course the question is whether that's a sustained level or a result of pent-up demand, that's something we are keeping an eye on," he said.

The downturn showed stark divisions by industry, with demand for services like restaurant meals and airline flights still curtailed, he said. That's another way consumer spending patterns are a key clue to the recovery.

Spend or Save?

"The question we have is, is this going to go into spending and continue to result in strength in the retail trade sector, or go to debt reduction or go into savings and investment?" Peterson said. One big clue will come in the Sept. 11 report on quarterly financial flows, he said. That updates things such as the closely-watched measure of debt to disposable income.

Consumers have good reasons to save money the government sends them. Household debts eclipsed 100% of GDP during the last expansion amid Vancouver and Toronto housing booms that led policy makers to warn about overstretched finances. Many people fear for their jobs and making mortgage payments after unemployment surged to a record 13.7% in May, and job losses could climb again in a second Covid wave.

The agency is also looking at expanding another report on household finances based on tax data by income bracket, Peterson said. "We are as kind of an R&D project working on how we can make that information more real time, and perhaps produce on a quarterly basis to get at just that point. Are people in different income quintiles behaving differently or facing different challenges?"

More Flash Estimates

Statistics Canada will likely keep pressing ahead with more flash economic estimates, a move away from a past culture of taking more time up front to avoid big revisions later.

"We thought it was vital that we got the best quality data we can get into the hands of people as quickly as possible," during the pandemic, he said.

"We're getting the story right," he said. "So as long as we can continue to do this, I see no reason why we would turn back."

Work is also continuing with the Bank of Canada on how CPI inflation is faring through a pandemic that may lead to shifts in spending patterns. The work so far confirms only a "marginal" effect on price trends, he said. There could also be underlying perception issues around say how consumers see rising mobile phone bills that mask improved features such as unlimited data use.

"Perhaps we have to do a better job of contextualizing what we are seeing in the CPI to other things that are happening, either providing data on average prices, or perhaps providing more up-to-date indicators of consumer expenditures," Peterson said.