New data on spending patterns points to positive momentum as the economy gradually reopens — but shifting government supports and Covid-19 uncertainty pose risks, according to a report from TD Economics.
In a report based on anonymized data from the bank’s customers, excluding those in Ontario — which was largely still in “Stage 2” of its economic reopening at the time of TD’s analysis — business spending turned positive in the week ended July 24 for the first time since the start of the pandemic.
Spending increased 4.6% year over year in the week, which was “in line with historic norms,” TD said.
Personal spending growth also remained positive, rising by 1.8% that week, the bank noted.
“Spending patterns and improvements have so far tracked economic re-openings,” the report said.
Parts of Ontario only entered “Stage 3” on July 17, with others (including Toronto) joining in the following weeks.
“With almost all of Ontario now in Stage 3, further gains in spending are expected in the coming weeks,” TD said.
So far, year-over-year spending is up 0.4% on average in the third quarter, TD noted, following a second quarter that saw spending drop 16% on average.
“The recovery in spending remains on the right track,” the report said.
However, the report also observed that household spending has been supported by government programs, such as the Canada Emergency Response Benefit (CERB), which has bolstered incomes for workers hit hard by the pandemic.
The planned shift of CERB to a parallel Employment Insurance (EI) system will likely see an income drop for many CERB recipients, TD said.
“This creates a risk for the path of spending and the economy more broadly,” the bank noted.
Additionally, the report said that while overall spending growth has resumed, consumption patterns remain fundamentally different from past years.
Sectors such as clothing and professional services have seen a sharp rebound, whereas gas stations, recreation and entertainment, and travel “remain mired in negative growth.”
“For many sectors both large and small, until a vaccine or effective treatment is widely available, normal is still a long way away,” the report said.