Posthaste: Canadians' savings hoard has grown and it's the wealthiest who are adding to it
Wealthier Canadians are feeling less prosperous and their dented confidence is showing up in rising levels of savings among the top 40 per cent of earners, according to an RBC Economics report released on Jan. 25.
A historic pile of pandemic savings continued to swell late last year, hitting $350 billion in the third quarter of 2022 from $300 billion at the outset of the pandemic, fuelled mostly by Canada’s wealthiest citizens, who appear to have lost faith in equities and housing, according to economists Claire Fan and Nathan Janzen.
Citing data from Statistics Canada, they estimate savings among the top 40 per cent of earners rose 28 per cent from the first quarter of 2020 to the third quarter of 2022. And “these higher-earning households will likely continue to save,” the pair said in the report, because their consumer confidence has been shaken. “Lower consumer confidence typically leads to more saving, not less.”
The economists said data indicates chartered bank demand deposits — savings, chequing and money market accounts — have started to decline, but the money is being shifted into term deposits, which pay a greater return in exchange for the cash being locked in for a certain period of time.
Apparently, financial anxiety can strike in any income bracket and wealthier Canadians have had plenty of reason to harbour some money fears. According to a previous RBC estimate, “more than $1 trillion in assets were wiped out over the second and third quarters of last year as housing and financial markets retrenched.”
Rising interest rates, climbing a total of 425 basis to 4.5 per cent on Jan. 25 from 0.25 per cent in March 2022, are a prime reason for the wealthiest’s declining fortunes. The end of cheap money also helped push down the average national home price by 12 per cent in 2022, the Canadian Real Estate Association said earlier in January. The S&P/TSX composite index pulled back 8.7 per cent for the year, although it was down more than 14 per cent at its nadir in 2022.
Nevertheless, Canadians’ net worth remains higher than pre-pandemic levels, even though they feel “much less wealthy,” the RBC economists said.
Aside from the size of the savings hoard — 4.5 years’ worth of “pre-pandemic spending on food and restaurants” — Fan and Janzen noted that the boom in discretionary spending when the economic gates were thrown open appears to have been funded by income earnings.
“This was enabled by a rapid recovery in labour markets in the first half of the year, which offset the wind-down of government aid,” they said.
The economy created a net total of 381,000 positions in 2022, TD Economics said following the release of employment numbers for December and the year by Statistics Canada. The jobs data also showed that the average hourly wage continued to rise, increasing 5.1 per cent year over year.
But with so much undeployed cash still on the sidelines, Fan and Janzen worry that unleashing it would just delay the inevitable and lead to higher inflation, higher interest rates and possibly a worse recession.
The consumer price index indicates “excess demand” remains, backed, for example, by elevated prices for services. Other surveys, including the Bank of Canada’s business outlook survey, show that employers are still having trouble hiring workers.
“As we noted in previous work, household net worth — which spiked during the pandemic — is now shifting from a driver to a drag on spending growth,” Fan and Janzen said.
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The Bank of Canada hiked interest rates 25 basis points to 4.5 per cent on Jan. 25, confirming a move that was widely anticipated by most economists. Rates now stand at levels last seen in 2007, just before the start of the Great Recession. With January’s hotly anticipated decision done and dusted, the next question on economists’ minds is “where to from here.” Bank of Canada governor Tiff Macklem appeared to be willing to provide the answer, writes Kevin Carmichael, indicating that the unprecedented rate-hiking campaign might be over if the economy behaves according to forecasts.
Read the full story here.
The standing committee on transport, infrastructure and communities meets on air passenger protection regulations
The Canada Mortgage and Housing Corporation will release its Rental Market ReportThe results of an investigation into Home Depot of Canada Inc.’s sharing of customer e-receipt information with Meta Platforms Inc., which operates Facebook, will be released. A news conference for journalists will be held to discuss the findings. The investigation’s report of findings will be posted on priv.gc.ca at 9:30 a.m.
The standing committee on public accounts meets on Report 10, Specific COVID-19 Benefits, of the 2022 Reports 9 and 10 of the auditor general of Canada. Karen Hogan, auditor general of Canada, appears as a witness
Environment and Climate Change Minister Steven Guilbeault; Families, Children and Social Development Minister Karina Gould; and Julie Dabrusin, Liberal MP for Toronto Danforth, will make an announcement regarding funding for projects to protect natural spaces and facilitate access to green space around the GTA
Indigenous leaders, the energy and mining industry and governments will gather in Calgary for a first of its kind conference that will lead the way to responsible and inclusive resource development. Conservative Leader Pierre Poilievre is scheduled to give a keynote speech
Alberta Advanced Education Minister Demetrios Nicolaides and Health Minister Jason Copping will discuss how the government is addressing rural physician shortages
Scotiabank hosts an economic outlook forum for 2023. Jean-Francois Perrault, Scotiabank’s chief economist; and Stephen Poloz, former governor at the Bank of Canada, will deliver keynote speeches
NDP leader Jagmeet Singh, joined by NDP MP Alistair MacGregor (Cowichan – Malahat – Langford) will host a roundtable discussion on health care amid rising concerns about privatization and long wait times in emergency rooms
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It’s hard to believe there might be any relief from the prices for food. Grocery prices were up 11 per cent in December compared with a year ago, Statistics Canada recently reported. Overall, grocery prices were up 9.8 per cent in 2022 compared with a year earlier — the fastest pace since 1981. As shoppers grapple with spiralling food costs, some are turning for the first time to tips and tricks long used by older Canadians. But, warns one seasoned shopper, beware of deals that might not be as good as they appear at first blush. Read here to learn about some valuable shopping tips.
Today’s Posthaste was written by Gigi Suhanic (@gsuhanic), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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