The household spending story of the pandemic has been dominated by an insatiable demand for goods. Canadians might not have bought nearly as much stuff as our American neighbours, but shoppers here didn’t hold back, either.
However, a lot of that consumption came at the expense of spending on services, such as restaurants, travel, pet groomers and hairdressers. After more than two years, the sector had yet to even close the gap with where it was before COVID-19 hit. That ended in the second quarter, when Statistics Canada reported spending on services soared 16.3 per cent on an annualized basis, finally elevating the sector above its prepandemic level.
With most COVID-19 restrictions lifted, Canadians forked out on travel, dining out and other experiences, so much in fact that the contribution to GDP of services spending more than made up for a drop in residential investment.
Canada’s economic growth lags expectations, but unlikely to deter another big BoC rate hike
The question now is whether the surge can keep going in the face of higher interest rates, rising consumer prices, falling real wages and the psychological effect of lower house prices. The service sector is still at least 4.5 per cent behind where it might have been if the trajectory of the previous decade had continued, suggesting there could still be more pent-up demand out there.
On the other hand, as Bank of Montreal chief economist Doug Porter sees it, this increased spending might be Canada’s “one last reopening gasp” before reality hits and drags down the economy.
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