Consumer spending in Canada has slowed down, leading to a standstill in the country's economy [ce569a2a]. This slowdown is particularly evident among heavily mortgaged individuals, who are being cautious with their spending. As a result, the labor market is also cooling, with wage growth forecasted to decelerate. The government is taking steps to address the issue of housing affordability and availability, which remain top concerns [ce569a2a].
On a global scale, major economies are experiencing peak inflation, and global GDP growth is projected to be 2.3% in 2023. However, the US economy continues to outperform expectations, although economic growth is expected to slow in the first half of next year [ce569a2a] [08f6190e].
In addition to the slowdown in consumer spending, Canadians have a worsening outlook on their ability to pay their debts. While the consumer debt index improved slightly, a significant number of Canadians believe their debt situation will worsen in the coming years [0c3d74f2]. Many Canadians are also struggling to meet their financial obligations, with a significant percentage reporting that they don't make enough to cover their bills and debt payments [0c3d74f2].
The combination of a slowdown in consumer spending and a worsening debt situation highlights the challenges faced by Canada's economy. It is crucial for policymakers and individuals to address these issues in order to stimulate economic growth and improve financial stability [ce569a2a] [0c3d74f2].
A recent report from TD Economics reveals that the increase in mortgage rates in Canada is causing Canadians to allocate 15.4% of their income to pay their debts, higher than the peak of American indebtedness before the Great Financial Crisis [62f923f7]. The impact of mortgage renewals on spending is significant, with those who renewed in 2023 experiencing the biggest hit. TD Economics forecasts that 47% of all mortgages will have renewed at higher rates by the end of this year, and 65% by the end of next year. The study suggests that the 2024 cohort will also face a payment shock and will likely trim spending further, putting downward pressure on overall consumer spending. TD now forecasts that consumption growth will fall to 0.6% in 2024 from 1.6% this year [62f923f7].
RBC CEO David McKay attributes Canada's lagging economy to 'payment shock' caused by shorter mortgage contracts compared to the US. Most Canadian homeowners have contracts that must be renewed every five years, leading to higher mortgage payments. This has resulted in a slowdown in consumer spending and negative GDP growth. McKay also mentions the challenges faced by RBC's California-based subsidiary, City National Bank, due to regulatory uncertainty and rules about liquidity and capital [3dcce83b].
President Joe Biden commented on the situation, emphasizing the need for stable growth and lower inflation. The Federal Reserve's decision on interest rates is expected to be a key event this week [62f923f7].
The birth rate in Canada has dropped to 1.33, lower than the preferred number of children which is around 1.5. The mismatch between desired and actual family size reflects concerns about the future, including high housing costs, environmental issues, economic shocks, and online distractions. Achieving social stability and balancing the needs for family, work, and leisure may help stabilize the birth rate [2aaff2b3].
Canadian household spending is pulling back while U.S. consumer spending remains strong. The drawdown of U.S. households' pandemic savings has delayed but not prevented a slowdown in consumer spending. The U.S. has outperformed Canada this year, with per capita consumer spending above pre-pandemic levels. The larger government budget deficit in the U.S. is helping prop up labor markets. American households have been more willing to spend out of excess pandemic savings. Canadian households have been more cautious about dipping into pandemic savings. The U.S. is less sensitive to higher interest rates in the near term. Canadian households have a larger savings stockpile, but it is not evenly distributed. American households are just as vulnerable as Canadian households to softening labor markets. The expectation is for the U.S. to enter into a recession after Canada. Softening growth in the U.S. could impact Canadian exports. Canadians can expect to see softer data coming out of the U.S. in the months ahead [f887f0e7].
The Canadian economy contracted in the third quarter while U.S. real GDP accelerated due to the differing performance of households. Real consumer spending stalled in Canada but increased by 3.6% annualized in the U.S. One key reason for this difference is that Canadian households are spending double the share of disposable income on mortgage payments compared to the U.S. This points to relative downside risks for the Canadian economy and suggests earlier rate cuts from the Bank of Canada than the Fed. Rate cut expectations have driven a rally in bonds and stocks, but the Fed may push back on the bond market's rate cut pricing. Earnings revisions for the S&P 500 and Russell 2000 remain negative, but a robust liquidity environment has supported valuations. The re-emergence of U.S. manufacturing is an actionable theme, with nearshoring cited as a significant long-term growth opportunity. The North American railroad network and the Port of Lázaro Cárdenas indicate strong industrial growth in the region. [f155ffa9].
Canadians' pandemic savings are not being spent, affecting the economy. The savings ballooned to over $300 billion, but the bulk of the money is still sitting in bank accounts. Lower- and middle-income households spent much of what they saved, while higher-income households have saved up more money. Business insolvencies increased by over 41% last year. Rent hit a record high in January. Canadians saved money during the pandemic but haven't spent it, unlike Americans. The theories for this include fewer lockdown measures in the US, higher debt load for Canadians, and the US practice of 30-year, locked-in mortgages. Wealthier Canadians are less inclined to spend their savings and are taking advantage of higher returns on fixed deposits and GICs. The lack of spending has left no cushion for lower-income households, who continue to feel the financial pain of higher living costs and inflation. [6080392f].
After the outbreak of the pandemic in 2020, Canadians saved over $300 billion, but the boost to the economy from spending hasn't happened yet. The total household savings in Canada are still about $350 billion higher than before the pandemic. Lower- and middle-income households spent most of their savings during the pandemic, while higher-income households saved more. The disparity between income levels and the trend of large savings remaining unspent in Canada is evident. In the US, Americans saved a lot of money during the pandemic and spent it when restrictions were eased, stimulating the economy. Several theories suggest that Canadians kept their savings while Americans were more prone to spending due to factors such as government support, earlier relaxation of lockdown measures in the US, and differences in debt levels and mortgage structures. Wealthier Canadians are less inclined to spend their savings. The Bank of Canada's rate hike in 2022 and rising living costs are affecting economic growth in Canada. The majority of Americans don't have much savings left. The article discusses the reasons behind Americans' unhappiness with Biden's economy and the differences in savings behavior between Canada and the US. [475a4fd3]
Following the pandemic in 2020, Canadians saved over $300 billion, but the boost to the economy has yet to happen. The savings are still sitting in bank accounts, with low- and middle-income households spending most of what they saved during the pandemic. Higher-income households have saved more. The disparity between income levels and the large amount of savings that could be spent to benefit the economy is a concern. The pandemic savings in the US were spent as restrictions eased, but in Canada, the savings remain largely unspent. The government support in Canada lasted longer than in the US, and Canadians have higher debt levels, which may make them more resilient to spending. Wealthy Canadians are less inclined to spend their savings, as they have other reasons for saving and can afford regular expenses. The large amount of savings is helping to avoid a possible recession, but low-income households continue to feel the financial pain of the high cost of living. [ce02a8f6]
The Russian economy is now completely dependent on the war in Ukraine. The outbreak of the pandemic in 2020 led to reduced spending and increased savings in Canada, totaling over $300 billion. However, these savings have not been spent as expected, with most of the money still sitting in bank accounts. The trend of large savings during the pandemic remaining unspent is also observed in the US. Canadians tend to save more while Americans tend to spend more, possibly due to longer government support in Canada and faster easing of lockdown measures in the US. Affluent Canadians are less inclined to spend their savings as they don't need to cover regular expenses. The Bank of Canada's rate hike in 2022 delayed economic growth, and rising wages and population growth helped keep the economy out of recession. The Russian economy's dependence on the war in Ukraine poses risks as it cannot lose or win. The article does not mention any specific names, numbers, or dates related to the war in Ukraine or the Russian economy. [cc0241b0]
Since the outbreak of the pandemic in 2020, Canadians have saved over $350 billion. However, the expected boost to the economy from spending this money has not materialized. Most of the savings are still sitting in bank accounts, with little indication of big spending increases ahead. Low- and middle-income households spent most of their pandemic savings, while high-income households actually saved more money. The trend of large savings remaining in the system while the stock of savings has evaporated this year is striking. Experts are unsure why Canadians are not spending their savings. In contrast, Americans spent their pandemic savings when restrictions were eased, stimulating the economy. Several theories suggest that Canadian government support lasted longer, Canadians carry more debt, and there are different mortgage structures. Affluent Canadians are less inclined to spend their savings. The large reserve of savings is hoped to help avoid a potential recession, but there is no cushion for low-income households feeling the financial pain of the high cost of living. [fe0075e4]
Americans saved $2.1 trillion during the pandemic, but now that extra cushion is gone, leaving economists concerned about the future. The pandemic savings glut has turned negative, indicating that many Americans now have more debt than savings. Chicago Fed President Austan Goolsbee is concerned about rising consumer debt levels and increasing consumer defaults, which could spell trouble for the U.S. economy. Retailers are experiencing decreased consumer spending and are implementing price cuts to encourage shopping. The U.S. labor market remains strong, which could help consumers maintain their spending patterns. Major companies like Disney, Airbnb, and Uber will report their results in the coming weeks, giving insight into consumer spending for the rest of 2024. [de5e0753]
The pandemic savings cushions that helped Americans weather high prices in recent years have worn through, contributing to a loss of consumer firepower that's rippling through the economy. Delinquencies are rising, executives are flagging caution among shoppers, and retail sales barely increased in May after falling in April. [3ba47488]