How the Pandemic has Affected Credit Card Spending in Canada

CAPACITY, Canada's national credit card clearinghouse, has seen a steep increase in their Cardholders' Indebtedness Index since the beginning of the COVID 19 pandemic. The figure is up nearly 23% compared to last year at this time.

"It's quite clear that since the outbreak of COVID 19 pandemic has impacted consumers' willingness to spend money on nonessential items, even as the world welcomes a new year, 2022," said CAPACITY President Jacques Latour. "For example, our anecdotal evidence suggests fewer dinners out at restaurants during what is usual food servicee busiest times for food service businesses."

According to Mr. Latour, there are also more reports of Canadians choosing to stay home and watch movies themselves instead of going out to the theatre.

"Movies add up quickly," he said, "especially when you buy snacks and drinks for an entire family."

Financial services companies have also reported a significant increase in cardholders' cash withdrawals since COVID 19 was confirmed in April.

"Typically we only see about $1 billion in ATM withdrawals per month," said Canadian Bankers Association spokesman Phil McIntosh. "But that number has spiked to nearly $2.4 billion over the past four weeks."

A survey conducted by CIBC, one of the CAPACITY's clearing-house members, indicates that Canadians are taking advantage of their credit cards at record levels during what is usually a slow summer month.

The study found that while sales at the nation's retailers were down by almost 8% in June, they increased by more than 5% during the first three weeks of July.

"Consumers aren't spending their dollars at shopping malls or grocery stores like they usually do," said Brian Porter, CIBC's Chief Marketing Officer. "Instead they're choosing to buy items that are much less discretionary."

He pointed out that Canadians are using their credits cards to stock up on necessary items such as batteries for their portable radios and flashlight, non-perishable food items like canned vegetables and fruits, bottled water, and pet food. They're also buying industrial quantities of over-the-counter medications like acetaminophen capsules (Tylenol), ibuprofen tablets (Advil, Motrin), and decongestants.

"It's not surprising given how hard it is to get only the essentials at local pharmacies," said Mr. Porter.

"They're being cleaned out so quickly that many stores are having trouble restocking their shelves."

This trend has also had an impact on car dealers across Canada, according to Mike Allen, Vice President of the Canadian Automobile Dealers' Association (CADA). He says there is renewed interest in vehicles with high seating capacities like minivans and sports utility vehicles (SUVs). "There's definitely been a rush on buying these types of vehicles. It used to be gas-guzzling SUVs were for soccer moms but now they're appearing in driveways everywhere you look."

He added that luxury car makers, typically popular in the summer months, haven't been spared either.

"People who typically buy high-end sports cars and convertibles are now buying SUVs and minivans instead," he said. "It's just a matter of getting the best value for your money at this point."

"Obviously we're not seeing any dramatic increase in Canadians' love affair with their cars," says Andy Georgeson, General Manager of Toyota Canada Inc., one of the country's biggest car manufacturers. "But people who would ordinarily be shopping around for a new convertible or a sleek roadster are turning to larger vehicles because they offer more room while still getting good gas mileage." He added that while demand for some types of vehicles is up, other popular choices have been down.

"Sales of hybrid cars," he said, "are way down because there just isn't enough gasoline to go around."

First-quarter results for the nation's airlines, which tend to receive a great deal of their revenue from ticket sales during the summer months, tell an interesting story. According to industry analysts at CAPACITY, airline revenues were down slightly in this year's January-to-March period compared with the same time last year, but they increased by more than 5% in June and stayed on track for another record high in July.

"It hasn't been that long since Canadians got their hands on fresh supplies of gasoline," said David Newman, manager of Air Transport Services Group (ATSG), one of Canada's largest aircraft leasing companies.

"And while it's true that there are some reports about people spending more money on ground transportation than usual these days," he added, "we haven't seen any evidence of that affecting air travel."

Mr. Newman pointed out that Canada's overall air cargo traffic is up by more than 5% since the COVID 19 pandemic started. "We're seeing a greater number of shipments to and from places like China and India because those products are in much higher demand," he said.

"Canada's retailers and smaller manufacturers don't want to miss out on this emerging market."

First- indicate that the COVID 19 Pandemic has had an effect on credit card spending in Canada. According to data collected by CAPACITY, the country's largest credit card clearinghouse, Canadians' retail purchases were 11% lower in Q1 versus last quarter, but their average purchase price increased by 8%.

"Canadians are not spending money like they usually do during this time of year," says Jacques Latour, President of CAPACITY. "We've seen a decline in everyday transactions like groceries and gas but there has been an increase in the average price of big-ticket items."

Part of this trend towards more expensive purchases can be attributed to a growth in demand for luxury goods, according to industry analyst Richard Gertz. "Canadians seem to be making an effort to buy high-priced items like cars and boats," he said. "These types of products tend to hold their value better than smaller commodities, so it makes sense that people would want them right now."

According to Mr. Latour, Canadians are also prioritizing savings overspending during the COVID 19 Pandemic. He says that while many consumers continue using credit cards for business purposes, they're not carrying debt like they did last year. "We've seen a fairly steady decline in the average amount of credit card debt among Canadians since the pandemic started," he said. "People are actually paying back what they owe, instead of taking on more."

Despite these trends towards conserving money and paying down debt, retailers continue to see an increase in summer-related sales. According to David Newman, General Manager of ATSG, one of Canada's largest aircraft leasing companies, airlines have also benefited from increased spending at this time of year. He points out that the country's air cargo traffic has risen by more than 5% over last year due to increased demand for overseas products. "Canada's retailers and smaller manufacturers don't want to miss out on this emerging market," he said.

"I think that when the COVID 19 Pandemic is over, people are going to look back and remember this time as being something special," said Richard Gertz, an industry analyst at RBC Capital Markets in Toronto.

"Canadians have done a great job of saving money so far and they continue to do what is necessary to keep their finances healthy."