Results of the Fourth-Quarter Survey | Vol. 1.4 | January 11, 2021
The Canadian Survey of Consumer Expectations (CSCE) collects respondents’ views on inflation, the labour market and household finances. The survey for the fourth quarter of 2020 was conducted from November 10 to December 1, 2020. This period coincides with a sharp increase in COVID‑19 cases across Canada and follows announcements about the development of effective vaccines. Since the survey was conducted, some provinces have imposed additional measures to contain the spread of the virus. In addition, the first vaccines have begun to be administered. Like the previous two surveys, the fourth-quarter survey included questions on the impacts of COVID‑19 and the measures to contain its spread. This survey also asked respondents how they used any benefits they received from income-support programs that governments put in place to help them through the pandemic (Box 1). This quarter, the report provides some details by demographic characteristics.
Overview
- Responses to questions on the impact of the pandemic indicate that, with the number of COVID‑19 cases growing quickly, Canadians are more concerned about health risks than they were in the previous survey. Consequently, consumers reported that they are taking more precautions but are adapting to ongoing restrictions. Overall, the economic recovery is expected to be slow and uneven, with possible long-term effects on the labour market. Nonetheless, there is growing optimism, as more people expect that life will eventually return to normal. This optimism likely reflects the impact of announcements about effective vaccines.
- Indicators of labour turnover deteriorated modestly after recovering somewhat in the third quarter of 2020, consistent with concerns about higher COVID‑19 infection rates.
- Consumers’ inflation expectations increased over a one-year horizon, more than reversing the third quarter’s decline. The uptick in consumers’ short-term expectations may reflect the pickup in the growth of gasoline prices, as this component tends to influence households’ views about overall inflation. Looking further out, inflation expectations over two years remained relatively stable, while those for five years ahead declined.
- Overall, after improving in the previous quarter, consumers’ expectations for labour market conditions were mixed in the fourth quarter and remain lower than they were before the pandemic. Expectations about wage growth have changed little and remain below their pre-pandemic level. For a second consecutive quarter, consumers’ expectations for keeping their job improved modestly but remain worse than they were in the spring survey. Respondents also reported that they were less likely to find a new job if they were to lose their current job and less likely to leave their job voluntarily. This points to a subdued pace of job changing and “moving up,” which could weigh on future wage growth.
- Consumers’ expectations for spending growth ticked up in the fourth quarter of 2020, while expectations for household income growth were unchanged. The gap between expectations for spending growth and expectations for income growth has widened, but expected spending growth does not exceed expected income growth as much as it did before the pandemic. This suggests that consumers are still more cautious than before COVID‑19 but could spend part of their savings or increase borrowing going forward.
- The pandemic is pushing buyers to prefer larger homes and those outside of city centres. Consistent with the observed rebound in the housing market, consumers’ expectations for house price growth continue to recover from the weakness seen in the second quarter. The increase is widespread across provinces.
- Consumers reported that income-support programs provided a boost to their spending, with nearly one-half of the amount received used to purchase goods and services and about one-third used to pay down debt (Box 1).
Inflation
Consumer expectations for one-year-ahead inflation picked up, more than reversing the decrease seen in the third quarter (Chart 1).1, 2, 3 This increase in short-term expectations could reflect the pickup in the growth of gasoline prices in the fourth quarter of 2020. Expectations for inflation two years from now and perceptions about inflation over the past 12 months remain relatively stable and close to levels observed over the past year (2 and 3 percent, respectively). Expectations for five-year-ahead inflation have been declining since the beginning of the pandemic and are near the top end of the Bank of Canada’s inflation-control target range of 1 to 3 percent. Most respondents anticipate that over the next 12 months, inflation will stay within or just above the Bank’s inflation-control target range. Consumers’ uncertainty about their forecasts for inflation eased in the fourth quarter, down from elevated levels at the beginning of the pandemic. This may reflect a decrease in uncertainty about the economic outlook following announcements about effective vaccines (Chart 2).
Chart 1: Inflation expectations
Chart 2: Inflation expectations: uncertainty
Labour market
Overall, consumers’ expectations around labour market conditions are little changed and continue to be weaker than before the pandemic. Respondents expect a slower return to their normal work practices than they did in the previous quarter. This may reflect the impact of the second wave of the virus being stronger than previously expected.
Consumers’ expectations for their wage growth over the next year have changed little and remain below their pre-pandemic level at 2.0 percent. Meanwhile, perceptions of wage growth over the past 12 months stayed at an all-time low of 1.1 percent (Chart 3).
Consumers’ expectations for keeping their job improved modestly for a second consecutive quarter, consistent with the continued job recovery seen since the economy reopened in May and June (Chart 4). Still, respondents reported that their prospects for keeping a job are worse than before the pandemic. In addition, their expectations for finding a new job deteriorated, which could reflect concerns about higher COVID‑19 infection rates following the rise in cases. The reported likelihood of voluntarily leaving a job decreased slightly and is much weaker than before the pandemic, suggesting that concerns about the health of the labour market are still elevated or that people are unwilling to change jobs until the situation has normalized. If these concerns result in less turnover in the job market, that could lower the quality of job-worker matching, leading to lower productivity and weaker wage growth in the future.
Chart 3: Wage growth expectations
Chart 4: Labour turnover
Household finance, credit and house prices
Consumers expect their spending growth to recover, while prospects for household income growth remain unchanged (Chart 5). This expected recovery in spending could reflect the impact of the announcements about the development of effective vaccines. The gap between spending expectations and income expectations has widened, suggesting that households could spend part of their accumulated savings going forward.4 Still, the gap remains smaller than it was just before the pandemic began, suggesting that, on balance, consumers are still more cautious than before the pandemic.
Consumers’ interest rate expectations for two years ahead have moderated, and expectations at all horizons are lower than their pre-pandemic levels. These lower expectations are in line with the Bank’s policy rate cuts and forward guidance (Chart 6). However, consumers’ views about access to credit deteriorated from the previous quarter to their lowest level so far, indicating tighter credit conditions since the onset of the pandemic.
Most people reported being able to make debt payments on time. A small share of respondents (8 percent) requested debt payment deferral (for mortgages or consumer credit), and the vast majority of these were partly or fully approved.5
Consistent with the rebound in the housing market, consumers’ expectations for house price growth ticked up from the previous quarter, reaching an all-time high (Chart 7). While the increase was widespread across provinces, expectations remain modest in Alberta. The pandemic is pushing buyers to prefer larger homes and locations outside of city centres.
Chart 5: Household income and spending expectations
Chart 6: Interest rate expectations
Chart 7: House price growth expectations
Box 1: Federal income support stimulated consumption
Like the previous two surveys, the fourth-quarter survey included questions on the impact of COVID‑19 and the measures to contain its spread. This survey also added new questions on how respondents used benefits from income-support programs that governments put in place during the pandemic, including the Canada Emergency Response Benefit (CERB), the Canada Recovery Benefit, the Canada Recovery Sickness Benefit and the Canada Recovery Caregiving Benefit.
Overall, consumers indicated heightened concerns about health and economic risks as the number of COVID‑19 cases increased in the fourth quarter of 2020. Governments imposed new containment measures, and Canadians are taking more precautions and are adapting to ongoing restrictions. About three-quarters of respondents expect the economic impact from another wave of COVID‑19 and containment measures to be either similar to or not as bad as the impact from the initial spring 2020 outbreak. There is also growing optimism, as a larger share of people than in previous quarters expect that life will eventually return to normal. This may reflect the positive impact that announcements about effective vaccines have had on households’ perceptions.
As in the previous survey, most respondents do not expect the threat from COVID‑19 to diminish before the second half of 2021. Expectations among many for a slow return to normal—or even no return to normal for some—suggest the possibility of a lasting impact from the crisis.
The pandemic continues to affect how people behave and spend now and how they view their future. The impact of COVID‑19 on spending patterns has persisted, with respondents still reporting that they are shopping in person less often and making online purchases more frequently. Most of them shop online to substitute for in-store purchases.
About one-fifth of respondents reported planning to resume major purchases and social and recreational activities that they have delayed once the crisis is over. About 20 percent of them also reported putting plans on hold that they will reconsider later, which may point to some pent-up demand. Compared with the previous quarter, more households with an income of $100,000 or more plan to spend part of their savings from cancelled social and recreational activities on discretionary items such as furniture or sports equipment (Chart 1‑A). This suggests that more households than in the previous survey are willing to spend on discretionary items.
CERB and other government income-support benefits have also stimulated consumption. On average, consumers receiving benefits reported having spent a large share of them. Those with lower income reported somewhat higher spending rates. Respondents also used CERB and other benefits to pay down debt (Chart 1‑B).
| Income | I will spend money on essential items such as groceries and medication | I will spend money on non-essential goods or services such as bicycle, furniture, gardening, pool or car | ||
|---|---|---|---|---|
| 2020Q3 | 2020Q4 | 2020Q3 | 2020Q4 | |
| Less than $40,000 | 77.73 | 76.7 | 22.27 | 23.3 |
| $40,000 to $99,999 | 78.54 | 72.28 | 21.46 | 27.72 |
| $100,000 or more | 65.58 | 52.49 | 34.42 | 47.51 |
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. With reduced spending and fewer recreational and social activities, some consumers—mostly those with higher incomes—reported saving more than usual.[←]
- 5. Respondents requested payment deferrals because of a pandemic-related decline in household income or for precautionary motives.[←]