Covid-19 batters consumer spending
Consumer spending continues to take a hit from the pandemic shutdown as the average non-mortgage debt fell in the first quarter for the first time in more than a decade.
Equifax Canada’s latest report on Canadian consumer credit said the 0.5% drop in average non-mortgage debt to $23,386 reflects a significant decrease in consumer spending in March.
Saskatchewan saw the biggest decline in average non-mortgage debt with a decrease of 2.44%, followed by Manitoba which fell 1.95%. Alberta trails behind Manitoba with a dip of 1.72%, followed by British Columbia, down 1.34%.
The 90-day delinquency rate, or the percentage of credit users who have missed three or more payments for non-mortgage debt, rose by nearly 9% to 1.22%. British Columbia saw the greatest hike in delinquency rate for non-mortgage debt at 12.65%, followed by Ontario which rose 12.33% and Alberta, up 11.79%.
On a city basis, Calgary saw the biggest year-over-year jump in delinquency rates in Q1, rising by 13.36%, followed by Toronto, up 12.69%. Vancouver’s delinquency rate rose by 12.1%.
Delinquency rates among young borrowers have been relatively stable in the early phase of the pandemic, partly due to the increased use of payment deferrals.
Younger borrowers aged 18 to 25 reported the most significant decline in debt, falling by 1.03%. This trend is mirrored in young consumers aged 26 to 35 and 36 to 45.
The volume of consumers looking for new credit also fell significantly in mid-March and early April.
Lackadaisical consumer spending reflects the general uncertainty over economic recovery. According to a McKinsey survey on Canadian consumer sentiment conducted between May 21 and 24, nearly two-thirds (62%) of respondents said they believe the economy will be affected for six to 12 months or longer and stagnate or grow slowly thereafter.
Nearly half of the respondents are scaling back expenditures across most categories except for groceries and at-home entertainment. Travel, flights, hotels/resorts, short-term home rentals and out-of-home entertainment are the most-cited expenses for cut back.
While many consumers expect to physically shop in grocery stores, many plan to reduce in-person activities. One-third of respondents said they will refrain from going to the movies, concerts and malls.
New data on retail sales from Statistics Canada confirms that consumer spending is at an all-time low, although there are signs that it is bottoming out.
Retail sales fell 26.4% in April to $34.7 billion. Motor vehicle and parts dealers took the largest hit, while online sales surged to a record high, representing 9.5% of the total retail market.
Sales were down in every province for the second consecutive month in April, with the largest declines in Ontario and Quebec which have the highest number of COVID-19 cases in that month. Ontario’s retail sales fell by one-third (32.8%) following an 8.5% decrease in March.
Sales declined in all 11 subsectors for the first time in nearly three decades. “Clothing stores have been the hardest hit by the pandemic, as sales in the subsector were down an astounding 85% since February,” said Richard Forbes, senior economist with the Conference Board of Canada.
April’s retail trade numbers support the non-profit think tank’s forecast that the country experienced its worst economic downturn in decades during the second quarter of 2020, according to Forbes. But the worst for retailers may be over as the preliminary estimate suggests that a recovery in retail sales has begun in May.
“Despite this turnaround, activity will not return to pre-pandemic levels until late 2021,” Forbes said. Many sectors, including accommodations, food services and air transportation, will not fully recover until a vaccine for COVID-19 has been made available globally, “something we do not anticipate will happen this year,” he added.