Results of the Third-Quarter Survey | Vol. 1.3 | October 19, 2020
The Canadian Survey of Consumer Expectations (CSCE) collects respondents’ views on inflation, the labour market and household finances. The survey for the third quarter of 2020 was conducted from August 17 to September 1, 2020. Reported COVID‑19 cases have risen in some provinces since the survey was conducted. The survey included questions, introduced in the previous quarter, on the impacts of COVID‑19 and the measures to contain its spread, along with new questions on how the pandemic is affecting households’ savings (Box 1).
Overview
- Responses to questions on COVID‑19 indicate that Canadians remain cautious but are more willing to engage in some economic activities compared with the second quarter. Consumers expect that the overall recovery will be slow. Expectations for future employment vary significantly across different demographic groups.
- Indicators of labour turnover, income and spending improved slightly after tumbling in the second quarter of 2020. This improvement is consistent with the reopening of the economy.
- Consumers’ inflation expectations declined over a one-year horizon, reversing last quarter’s increase. The reversal in consumers’ short-term expectations may reflect moderation in their expectations about growth of food prices, as households’ own views about food inflation shape their views of overall inflation. Looking further out, inflation expectations over two years remained relatively stable, and those for five years ahead ticked up slightly.
- Overall, consumers’ expectations for labour market conditions improved but remained lower than they were before the COVID‑19 outbreak. Expectations about wage growth remained below their pre-pandemic level. Some respondents feel more confident now about their job prospects: the reported likelihood of losing a job declined from the peak seen in the second quarter, and respondents also reported having better chances of finding a new job if they were to lose their current job.
- Consumers’ expectations for household income growth and spending growth ticked up modestly in the third quarter of 2020. The gap between them remained relatively narrow, as expectations of spending growth did not substantially outpace expectations of income growth as they did in the past. This suggests that consumers remain cautious.
- Consistent with the observed rebound in the housing market, consumer’s expectations for house price growth have recovered from the weakness seen in the second quarter. The increase was widespread across provinces.
- Some respondents reported higher than usual savings since the outbreak and anticipate keeping most of these savings for precautionary reasons. They also plan to focus their spending on essential products and services and to spend less on services involving in‑person interactions (Box 1).
Inflation
Consumer expectations for one-year-ahead inflation declined, reversing the increase seen in the second quarter and returning to their pre-pandemic level (Chart 1)1, 2, 3 This decline in short-term expectations could reflect the moderation in their expectations about growth of food prices in the third quarter of 2020. Expectations for inflation two years from now and perceptions about inflation over the past 12 months remained relatively stable and close to levels observed over the past year. Expectations for five-year-ahead inflation ticked up modestly after declining in the previous quarter. Most respondents anticipate that inflation will stay within or just above the Bank of Canada’s inflation-control target range of 1 to 3 percent (Chart 2). However, consumers’ uncertainty about forecasts for inflation continue to be elevated, reflecting high uncertainty about the economic outlook.
Chart 1: Inflation expectations
Chart 2: Inflation expectations: distribution
Labour market
Overall, consumers’ expectations around labour market conditions continued to be weaker than before the COVID‑19 outbreak. Consumers’ expectations for their wage growth over the next year remained below pre-pandemic level at 1.9 percent, while perceptions of wage growth over the past 12 months reached an all-time low of 1.1 percent (Chart 3).
Expectations for employment differed significantly by age group. For example, respondents between 18 and 24 years of age expect to return to a normal working schedule much later than those between 25 and 55 years.4 If these expectations are correct, younger workers could face the risk of longer-lasting economic damage (e.g., loss of work experience) from being out of the labour force for longer.
In contrast, consumers’ expectations for keeping or finding a new job improved modestly, consistent with the strong job recovery since the economy reopened in May and June (Chart 4). Despite a small improvement, the reported likelihood of voluntarily leaving a job remained much weaker than before the outbreak, suggesting that concerns about the health of the labour market are still elevated. If this results in less turnover, it could lower the quality of job-worker matching, leading to lower future productivity and wage growth.
Chart 3: Wage growth expectations
Chart 4: Labour turnover
Household finance, credit and house prices
Consumers’ expectations for household income and spending growth improved modestly (Chart 5) but continued to be subdued. The gap between them is relatively smaller than in the past, suggesting that, on balance, consumers are still cautious.
Consumers’ interest rate expectations remained much lower than pre-pandemic level, in line with the Bank’s policy rate announcements (Chart 6). Consumers’ views about access to credit were unchanged from the previous quarter and remained at historical lows, indicating tighter credit conditions since the onset of the pandemic. Still, most people reported being able to make debt payments on time.
Consistent with the rebound in the housing market, consumer’s expectations for house price growth recovered from the previous quarter (Chart 7). While the increase was widespread across provinces, expectations remained near zero in Alberta. Respondents who are considering buying a house or a condo reported a slight change in preference, indicating greater interest in less crowded and more remote environments.
Chart 5: Household income and spending expectations
Chart 6: Interest rate expectations
Chart 7: House price growth expectations
Box 1: Still cautious, consumers plan to keep some savings as a safeguard
As in the second quarter, the third-quarter survey included questions on the impacts of COVID‑19 and the measures to contain its spread. The survey also added new questions on how the pandemic is affecting households’ savings.
Overall, consumers remain cautious but are more willing to engage in some economic activities than they were in the second quarter. Respondents continue to perceive the health risks related to COVID‑19 as moderate to high. Perceptions of the economic risks from the pandemic have improved slightly. However, most respondents expect that the recovery will be slow.
The pandemic continues to weigh on households’ current behaviour and outlook for the future. The impact of COVID‑19 on spending patterns has persisted, with respondents reporting that they are shopping less often and shopping online more frequently. More people reported that they had cancelled or postponed major purchases than in the previous quarter.
With lower spending and reduced recreational and social activities, some consumers, mostly those with higher incomes, reported higher than usual savings (Chart 1-A). Lower-income households were more likely than other households to report plans to keep extra savings as a safeguard, though precautionary saving was common across all income groups (Chart 1-B). Only a small share of respondents reported planning to spend some of their additional savings on non-essential or more discretionary items, such as furniture or swimming pools.
Many consumers expect their work situation will return to normal sooner than their spending. This suggests that consumer demand will likely recover more slowly than the labour market, implying persistent slack in the economy.
Endnotes
- 1. We focus on median expectations rather than the average to avoid potential skewness driven by extreme values. For details on the computation of median inflation expectations and other data presented in this report, refer to the Overview.[←]
- 2. As in other countries, in Canada household inflation expectations tend to be somewhat higher than observed inflation. This suggests that it is more informative to focus on changes over time rather than levels. For more details see M.‑A. Gosselin and M. Khan, “A Survey of Consumer Expectations for Canada,” Bank of Canada Review (Autumn 2015): 14–23; and “Survey of Consumer Expectations,” Center for Microeconomic Data, Federal Reserve Bank of New York (October 2020).[←]
- 3. Inflation expectations can differ by demographic group (age, level of education and income). This also suggests that it is more informative to look at changes over time rather than levels to better understand aggregate inflation pressures.[←]
- 4. Forty percent of respondents between 18 and 24 years of age expected to return to a normal work schedule in nine months or later, which is twice as many as the share for respondents between 25 and 55 years of age.[←]