Unable to stray too far from home, Canadians have splurged to upgrade their homes. Anthony Okolie talks with Sri Thanabalasingam, Senior Economist, TD Bank, about the factors driving home renovation expenditures and the path ahead for spending growth in Canada.
- Sri, let's start with the big picture. In your latest report on Canadian spending, you say that spending growth edged up 11 and 1/2% in August to 13%, so far, in September when you exclude hard-hit sectors like travel, transportation, recreation, and entertainment.
So what category or categories are driving that spending?
- So the strength that we saw in September is primarily coming from home renovation-related categories. So that's home furnishing, as well as spending on home hardware and home centers. Those are all up, and they're up about 30% year-on-year on an average weekly basis. And so that's what's really driving the pickup in spending through the first three weeks of September.
ANTHONY OKOLIE: So why is housing-related spending so strong?
- Well, it comes back to the red-hot housing market. The housing market, as you probably know, has been pretty strong through the summer months because of the lack of a housing market during the spring months and in the lockdown period. So we had all that pent-up demand, as well as the pandemic shifting preferences for housing from high-rises to low-rises. So you're getting a lot of strength in the housing market.
And as people look to buy homes, they are renovating as well, after they purchase. And then people who are looking to sell homes are upgrading their homes so that they can fetch a higher price. So you have all of these factors playing a role in increasing housing-related spending, as well as the fact that people can't spend as much time going out on vacations. So they're staying close to home. And with those savings, we're seeing increased spending on housing-related items.
ANTHONY OKOLIE: And when you talk about that increased spending, which provinces saw the largest gains through this period?
- So in the first three weeks of September, we saw the largest gain in Ontario. Ontario spending growth moved into positive territory for the first time since early August, and that's likely related to reopening and that taking hold on the Ontario front. Quebec, in absolute terms, still leads the way in spending growth. Their spending growth pretty much is back to where it was during the pre-pandemic period.
ANTHONY OKOLIE: So let's shift to business expenditures. What trends are you seeing there?
- So on the business side of things, spending growth is improving. It moved into positive territory in early September. I believe that was the third time that it had done so since the lockdowns ended. So that's constructive for the business spending outlook. However, it is still quite weak compared to where we were prior to the pandemic. So it might still take some time for it to get back to where it was.
ANTHONY OKOLIE: So looking ahead, what's your outlook for spending going forward, and do you see any near-term risks, as well?
- Right. So on consumer spending, growth will likely not be as strong as we saw during the recovery period, or that rebound period. During that rebound period, we had a pent-up demand, a lot of that being unleashed during the summer months. And as we enter the fall season, that pent-up demand is dissipating. So there's still a lot of this uncertainty out there on the virus. So with virus infection rates rising, and we're moving into this second wave, that could weigh on the consumption recovery itself, especially as provinces impose stricter measures on uncertain areas of the economy.
And consumers and businesses could also hold back on spending because of all of this uncertainty that's caused by the virus. So that's definitely a near-term risk. Now, over the medium-term, we also have income supplements that are provided by the government. That will likely expire in early next year. And if they do expire with unemployment rates still quite high, that could also weigh on the consumption growth profile, as well. So that is more of a near-to-medium term risk.
ANTHONY OKOLIE: Sri, thank you very much for your insights.
- Thank you, Anthony.