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Consumer spending trends in North America seem to have taken a turn for the better with some sectors thriving more than others. Anthony Okolie speaks with Brian DePratto, Senior Economist, TD Bank, about the rebound in consumer spending, and whether those trends are sustainable.
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[MUSIC PLAYING]
- Brian, let's start with the big picture. Canadian spending growth moved into positive territory for the first time since the start of the pandemic in the week ending July 10. What's driving this impulse spending this summer?
- It's been a welcome change. It may only have been about 2% growth that we saw in that first week. But that came after three months of decline. And when you look at those declines and what drove that, it's a similar story in terms of that rebound. We saw that as the lockdowns went into place, it became quite tight. That's when you saw that big pullback. As those have begun to be lifted, as people have been able to go back to the shops, go back to a little bit of a normal routine, we've seen the spending patterns go with that. But I think that's really been the key here, is that people have had that confidence to go back out and get back to normal.
- And which categories are you seeing the biggest shift upwards or downwards in terms of spending as we start to see these reopenings?
- You know, it's been a little bit, again, of that reverse. When we first saw the lockdowns, we saw the grocery stores, home improvement stores really taking up a lot of that share, you know, essentially essential kind of resources. As things have started to become open, we've seen a little bit of a normalization again, to use that word. Some of the areas that weren't available, people now able to spend those gains. Grocery store falling off a little bit.
One I would point out is professional services, things like chiropractors, dentists, the like. You know, as more provinces have started to reopen and as a lot of these service providers have planned different ways of doing business, we've seen people going back and spending there. That's been a big shift.
There's two interesting exceptions, I would say, across that, even as we've seen things normalize. Travel, maybe unsurprisingly, still very, very low, very little spending in that category. And conversely, those home improvement stores-- we had this theme early on, you know, people stuck at home, maybe trying to do a little bit of improvement there, finishing some projects they had put off, that's still holding up quite well, even into the early summer.
- What about business spending? What are some of the trends that you're seeing there?
- There, it's a little bit softer. We're still seeing a positive trend. You know, we're off those lows, but still down about 7%, 8% year on year in that first week of July. I think the challenge we're seeing there is that it's a reflection of the difficulties for small business. We know from some of their associations, only about 60% of those businesses were even open at that time. There does seem to be a little bit of a skew towards some of the more challenged areas. Travel and tourism stand out a little bit there, particularly in some of the big city centers. So I think there is that key difference that that spending pattern that shifted on the consumer side, that's causing a little bit of pain for some of those small businesses.
- What are some of the risks or headwinds to further increases in spending?
- I go back to what has enabled the spending gains we've seen. It's controlling the infection curve that, in turn, allowing governments to have confidence in reopening, and then having consumer confidence that people feel comfortable going out, knowing that, obviously, the risk is not gone, but we're-- you know, we have some control there. It's not quite what it was.
So as we've seen some of the cases rise back up-- certainly, the western provinces stand out, Ontario as well, I think there's that risk there that one, you could see the openings maybe delayed or slowed, the remaining openings. But even beyond that, I think it's that core question of consumer confidence. Do people feel comfortable going out even if the stores are open?
And so you have some of that risk, that rising infections really put that at risk. And then knock-on effects of things like the job market, real estate. All those positive trends we've seen over the last month, month and a half, that's the risk that a rise in infections really puts that in a pinch.
- Brian, so given everything that we know, what's the one thing that viewers should take away from this spending data?
- Well, you know, I'm happy I'm able to share a little bit of positive news here, that we are seeing this encouraging trend. But I think we really have to keep in mind those shifting patterns. So even though that overall spending is moving in the right direction, it's not evenly shared. You know, some industries, clearly gainers from these trends. Others more challenged. I think that differentiation is really important to keep in mind when you are looking at this data and looking at these trends.
- Brian, thank you very much for your insights.
- Thank you for having me.
[MUSIC PLAYING]
- Brian, let's start with the big picture. Canadian spending growth moved into positive territory for the first time since the start of the pandemic in the week ending July 10. What's driving this impulse spending this summer?
- It's been a welcome change. It may only have been about 2% growth that we saw in that first week. But that came after three months of decline. And when you look at those declines and what drove that, it's a similar story in terms of that rebound. We saw that as the lockdowns went into place, it became quite tight. That's when you saw that big pullback. As those have begun to be lifted, as people have been able to go back to the shops, go back to a little bit of a normal routine, we've seen the spending patterns go with that. But I think that's really been the key here, is that people have had that confidence to go back out and get back to normal.
- And which categories are you seeing the biggest shift upwards or downwards in terms of spending as we start to see these reopenings?
- You know, it's been a little bit, again, of that reverse. When we first saw the lockdowns, we saw the grocery stores, home improvement stores really taking up a lot of that share, you know, essentially essential kind of resources. As things have started to become open, we've seen a little bit of a normalization again, to use that word. Some of the areas that weren't available, people now able to spend those gains. Grocery store falling off a little bit.
One I would point out is professional services, things like chiropractors, dentists, the like. You know, as more provinces have started to reopen and as a lot of these service providers have planned different ways of doing business, we've seen people going back and spending there. That's been a big shift.
There's two interesting exceptions, I would say, across that, even as we've seen things normalize. Travel, maybe unsurprisingly, still very, very low, very little spending in that category. And conversely, those home improvement stores-- we had this theme early on, you know, people stuck at home, maybe trying to do a little bit of improvement there, finishing some projects they had put off, that's still holding up quite well, even into the early summer.
- What about business spending? What are some of the trends that you're seeing there?
- There, it's a little bit softer. We're still seeing a positive trend. You know, we're off those lows, but still down about 7%, 8% year on year in that first week of July. I think the challenge we're seeing there is that it's a reflection of the difficulties for small business. We know from some of their associations, only about 60% of those businesses were even open at that time. There does seem to be a little bit of a skew towards some of the more challenged areas. Travel and tourism stand out a little bit there, particularly in some of the big city centers. So I think there is that key difference that that spending pattern that shifted on the consumer side, that's causing a little bit of pain for some of those small businesses.
- What are some of the risks or headwinds to further increases in spending?
- I go back to what has enabled the spending gains we've seen. It's controlling the infection curve that, in turn, allowing governments to have confidence in reopening, and then having consumer confidence that people feel comfortable going out, knowing that, obviously, the risk is not gone, but we're-- you know, we have some control there. It's not quite what it was.
So as we've seen some of the cases rise back up-- certainly, the western provinces stand out, Ontario as well, I think there's that risk there that one, you could see the openings maybe delayed or slowed, the remaining openings. But even beyond that, I think it's that core question of consumer confidence. Do people feel comfortable going out even if the stores are open?
And so you have some of that risk, that rising infections really put that at risk. And then knock-on effects of things like the job market, real estate. All those positive trends we've seen over the last month, month and a half, that's the risk that a rise in infections really puts that in a pinch.
- Brian, so given everything that we know, what's the one thing that viewers should take away from this spending data?
- Well, you know, I'm happy I'm able to share a little bit of positive news here, that we are seeing this encouraging trend. But I think we really have to keep in mind those shifting patterns. So even though that overall spending is moving in the right direction, it's not evenly shared. You know, some industries, clearly gainers from these trends. Others more challenged. I think that differentiation is really important to keep in mind when you are looking at this data and looking at these trends.
- Brian, thank you very much for your insights.
- Thank you for having me.
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