Results of the Second-Quarter Survey | Vol. 2.2 | July 5, 2021
This survey took place during the third wave of the COVID‑19 pandemic and coincided with the acceleration of vaccination efforts.1 Like the previous four surveys, this survey included questions on the impact of COVID‑19 and the measures to contain its spread. This survey also asked respondents how they are planning to use the extra savings they may have accumulated during the pandemic (Box 1). The report provides some details by demographic characteristics.
Overview
- Consumer expectations for spending growth remain near a survey high, likely reflecting pent-up demand resulting from pandemic-related restrictions. Amid greater optimism and confidence about an end to the pandemic, some respondents plan to spend part of the savings they have built up over the past 16 months (Box 1).2 They also say they are more interested in spending on activities that have been restricted, such as going to restaurants. Older Canadians, however, remain notably cautious about resuming in-person activities.
- The share of respondents considering buying a house or condominium remains robust, notably among renters. The pandemic has boosted demand for housing overall, and the shift in buyers’ preferences toward larger homes and those outside of city centres remains. Consumer expectations for house price growth continued to edge up across the country.
- The recent pickup in inflation is reflected in higher near-term inflation expectations, but consumers expect this increase to be temporary. The rise in inflation expectations over a one-year horizon is consistent with higher expectations for food, gas and rent inflation. Inflation expectations for two years ahead remain relatively stable, while those for five years ahead have moved closer to the Bank of Canada’s inflation-control target range of 1 to 3 percent. These results are consistent with the anchoring of medium-term inflation expectations to the inflation target.
- Consumers expressed some optimism about labour market conditions, but most indicators remain below pre-pandemic levels. More people than in the previous survey think they could find another job if needed and do not foresee losing their job; however, this number is smaller than it was before the pandemic. This may reflect the continuing threat of COVID‑19 and the impact of ongoing containment measures in some regions. Survey results point to possible protracted labour market adjustments for respondents who have lost jobs or worked fewer hours during the pandemic. Consumer expectations about wage growth edged up but remain moderate.
- Most people would like to work remotely after the pandemic. This has implications for housing preferences and demand for office space.
Consumers plan to spend some of the savings accumulated during the pandemic
Consumer expectations for spending growth remain near a survey high despite little improvement in their income growth (Chart 1). These results could reflect pent-up demand for some goods and services after an extended period of restrictions as well as improved confidence about the end of the pandemic. The gap between expectations for spending and expectations for income growth remained near its widest point since the survey began. This is consistent with responses suggesting that some households will spend some of their additional savings accumulated during the pandemic (Box 1). It could also mean that some households may increase borrowing.
Chart 1: Household income and spending expectations
Box 1: Signs of optimism suggest more spending
As in recent surveys, the second-quarter survey in 2021 included questions on the impact of COVID‑19 and the measures to contain its spread. This survey also added new questions about respondents’ future behaviour after the majority of Canadians have been vaccinated.
At the time of the survey, many respondents had already received a COVID‑19 vaccine (about 50 percent) or intended to receive one (35 percent). Strong vaccination rollouts have encouraged growing optimism about an end to the pandemic. Many consumers indicated they would like to resume in-person activities. A large share of respondents cancelled plans for major purchases and social and recreational activities during the pandemic. Some now expect to resume those plans after the pandemic subsides—and about 10 percent of all respondents expect to do even more than originally planned. This suggests that some consumers want to catch up on missed purchases.
This pent-up demand would likely be supported by the extra savings some consumers have accumulated (more than 40 percent of respondents reported saving more than usual because of the pandemic). Roughly three-quarters of respondents with extra savings reported keeping these savings easily accessible for spending—in bank accounts or cash. Notably, respondents who did accumulate savings anticipate spending about 35 percent of these funds over the next two years (Chart 1‑A). They also expect to use about 10 percent of these extra savings to pay down debt, and an additional 10 percent for a down payment on a house or condo. Middle- and higher-income households plan to spend a larger share of their savings. They also intend to hold significantly less of their savings as a precaution. This is likely because they have more financial security than the lower-income group.
Chart 1-A: Consumers are likely to spend more than one-third of their extra savings on average over the next two years
| Keep savings as a precaution | Spend in 2021–22 | Use savings to pay down debt | Use savings for a downpayment | |
|---|---|---|---|---|
| Less than $40,000 | 61 | 27 | 7 | 5 |
| $40,000 to $100,000 | 42 | 34 | 10 | 14 |
| More than $100,000 | 39 | 38 | 13 | 9 |
Canadians expect to spend more on a wide range of goods and services—especially travel and social and recreational activities (Chart 1‑B). While much of the evidence suggests a robust increase in spending lies ahead, some caution around in-person activities remains among certain demographic groups, notably seniors. This is consistent with the perception of greater risks from the virus among those over 55.
Chart 1-B: High-contact services should see the greatest increase in consumer spending
| 2021Q1 | 2021Q2 | |
|---|---|---|
| Education | 2.6 | 0.5 |
| Durables (cars, appliances, furniture) | 1.5 | 4.5 |
| Groceries | 7.8 | 6.6 |
| Shelter | 14.1 | 12.9 |
| Health and personal care | 13.1 | 13.0 |
| Clothing, footwear | 9.9 | 13.7 |
| Travel and transportation | 16.8 | 21.5 |
| Restaurants, cinema, social activities | 19.0 | 26.9 |
In line with strong consumer demand, 14 percent of respondents plan to buy a house or condo, up from 11 percent in the previous quarter. A somewhat greater share of renters (20 percent) than owners (11 percent) plan to buy. Low mortgage rates, increased savings and pandemic-induced shifts in behaviour continue to boost demand for housing. Buyers are seeking larger homes and locations outside of city centres. Consistent with the strength in housing markets, consumer expectations for house price growth moved up again (Chart 2). This increase since the onset of the pandemic has been widespread across Canada, with expectations in Quebec rising the most.3
Chart 2: House price growth expectations
Consumers expect a temporary rise in inflation
Short-term inflation expectations have responded to the recent rise in inflation, but consumers expect this increase to be temporary. Expectations for inflation one year from now have increased, but medium-term expectations have not reacted to the recent increase in inflation, and long-term expectations have fallen (Chart 3).4, 5, 6 Most respondents anticipate that inflation will stay within or just above the Bank’s inflation-control target range of 1 to 3 percent, consistent with medium-term inflation expectations remaining well anchored.
The uptick in consumers’ short-term expectations aligns with higher expectations in the quarter for food, gas and rent inflation. These are items that respondents purchase frequently.
Uncertainty around inflation forecasts decreased slightly in the quarter and is below the elevated levels seen at the beginning of the pandemic (Chart 4).
Chart 3: Inflation expectations
Chart 4: Inflation expectations: uncertainty
Consumers are more optimistic about labour market conditions
Overall, consumer expectations for labour market conditions have improved but remain weaker than they were before the pandemic.
Consumers’ expectations for losing their job fell sharply in the second quarter of 2021, while their expectations for finding a job recovered to near pre-pandemic levels (Chart 5). These improvements could reflect increased confidence in the labour market because of the accelerated vaccination rollouts and anticipated reopening of the economy. The reported likelihood of voluntarily leaving a job recovered partly from lows seen at the beginning of the pandemic. This suggests that some people might be more willing to change jobs once the pandemic ends.
Chart 5: Labour turnover
The survey results indicate that labour market adjustments could be protracted for some workers. Nearly half of respondents whose hours worked or labour income have been negatively affected by the pandemic reported that finding a job in their field is harder now than a year ago. About 40 percent of respondents do not expect to return to a normal work schedule anytime soon. The recovery in jobs is expected to be uneven, with youth anticipating a slower return to a normal work schedule than prime-age workers.
Consumer expectations for wage growth remain moderate. They ticked up modestly in the quarter, while inflation expectations increased (Chart 6). This suggests that expectations for higher inflation have not led to expectations for higher wages. Perceptions of wage growth over the past 12 months climbed to 1.7 percent, in line with the survey’s historical average.
Chart 6: Wage growth expectations
Most people would like to work remotely after the pandemic. About 80 percent of respondents who have recently worked remotely expect to be able to continue doing so after the pandemic ends. This is consistent with the pandemic-related shift in housing preferences and may reduce demand for office space.
Consumers report fewer pandemic-related debt deferrals
While about three-quarters of respondents are meeting their debt obligations on time, about 5 percent reported having had trouble with debt payments and having asked for a debt deferral. The largest share (35 percent) said their deferral request was unrelated to the pandemic; this is an increase from the previous quarter. The number of those who could not make debt payments because of a pandemic-related decline in household income decreased to its lowest level. Further, the perceived probability of missing a debt payment has continued to decline since the outbreak of the virus.
Expectations for interest rates two years from now increased in the second quarter of 2021 but remain below pre-pandemic levels. These lower expectations since spring 2020 support expected household spending (Chart 7).
Chart 7: Interest rate expectations
Endnotes
- 1. The Canadian Survey of Consumer Expectations gathers respondents’ views on inflation, the labour market and household finances. The survey for the second quarter of 2021 was conducted from May 4 to May 14, 2021. Additional information on the survey and its content is available on the Bank of Canada website. The survey report summarizes opinions expressed by the respondents and does not necessarily reflect the views of the Bank of Canada.[←]
- 2. With reduced spending on recreational and social activities, some consumers—mostly those with higher incomes—reported saving more than usual.[←]
- 3. Respondents ranked the factors that have contributed to strong house price growth over the last 15 years. The supply of houses and population growth were cited as the two most important, followed by foreign buyers and credit conditions.[←]
- 4. 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.[←]
- 5. 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 (May 2021).[←]
- 6. 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.[←]