Canada’s economic slowdown in the fourth quarter of 2022 was also marked by rises in household disposable income, driven in part by government support.
Household disposable income rose three per cent in the fourth quarter of last year, nearly double the rate of gains in nominal household spending, according to a release from Statistics Canada on Tuesday.
Statistics Canada said the rise in disposable income is due in part to increases in government benefits, including a 10 per cent increase in Old Age Security (OAS) payments and a one-time top-up Goods and Services Tax (GST) credit.
“Disposable incomes got a shot in the arm by a GST credit top-up and a boost to OAS, and this will probably get spent over time, not all in one quarter. Spending is calming down a bit, but it’s not falling off the table by any means,” Douglas Porter, the chief economist at BMO, said in an email to BNN Bloomberg Tuesday.
James Orlando, a senior economist and director at TD Economics, said in a phone interview with BNN Bloomberg Tuesday that gains in disposable income could be mostly attributed to transfers from the government.
“The transfers from [the] government is really the one that stuck out like a sore thumb on the screen. That was a 33.9 per cent, so [a roughly] 34 per cent annualized increase in transfers from the government to people,” Orlando said.
Orlando said when individuals receive government support they might spend that money immediately if they need to, but amid inflationary uncertainty, some may elect to have an “extra cushion” and build up their savings.
The household saving rate hit six per cent in the fourth quarter of 2022, marking a one per cent increase from the previous quarter, according to Statistics Canada. The six per cent saving rate in 2022, was five per cent lower than the previous year, due in part to the expiration of pandemic-related benefits.
However, the 2022 savings rate remained above the 2019 rate of 2.1 per cent.
Amid economic uncertainty, Orlando said most people are anticipating a recession to occur this year.
“If you’re preparing for that economic slowdown, maybe you’re also preparing for the chances of job losses, and spending less or adjusting or spending in the face of that uncertainty is a pretty rational thing to do,” he said.
Orlando said he believes widespread recession fears are a likely cause of the increases in the savings rate and annualized disposable income.
He said that the gains in these areas indicate people are “not running down their excess savings.” According to Orlando, this shows the savings buffer that Canadians have been creating since before the pandemic continues to grow.
This savings buffer could provide “even more of a cushion for 2023,” Orlando said.
“We always thought that…the fact that consumers are on better footing this time around would make the slowdown easier. It seems like that cushion is building even more,” he said.