With the pandemic putting a damper on activities like dining out, attending concerts and vacationing abroad, Canadians are spending less and saving more. A lot more.
Statistics Canada, in a report issued on August 28, 2020, provided a detailed picture of the sharp shift in Canadian spending and savings habits.
From April to June, household spending in Canada crashed by 13.1%. Statistics Canada attributed the sharp drop to “substantial job losses, limited opportunities to spend because of closures of stores and restaurants and restrictions on travel and tourism.”
Household spending declines sharply
Some of the largest spending declines came in purchases of transportation services (-79.2%), food, beverage, and accommodation services (-45.6%), clothing materials (-38.3%) and new passenger cars (-37.8%).
During this same period, employees’ compensation declined by 8.9%. In ordinary circumstances, a drop of this magnitude would be expected to hurt household savings. However, due to government transfers to offset the economic impact of COVID-19, household disposable income rose by 10.8%.
This increase, coupled with a 13.7% decline in household spending (in nominal terms), pushed the household saving rate up to an astonishing 28.2%. That’s dramatically higher than the pre-pandemic savings rate in recent years of just 2% – 3% of disposable income.
According to Statistics Canada, “the increased household savings rate is aggregated across all income brackets,” though, in general, “savings rates are higher for higher income brackets.”
The Household Saving Rate in Canada increased dramatically to 28.20 percent in the second quarter of 2020.