Overview

  1. Key Insights from Customer Transactions
  2. COVID-19, the Canadian Economy and Scotiabank’s Transactions Data
  3. Retail Transactions Data Details
  4. Other High-Frequency Indicators of Activity

1. Key Insights from Canadian Customer Transactions  

This presentation is part of the weekly series intended to draw insights about the state of the Canadian economy from the flow of Scotiabank’s retail and non-retail transactions data.

Key takeaways from the payments data in this week’s publication:

  • Y/Y growth in consumer transactions (available through November 29th), having slowed dramatically in the first half of November, returned to positive territory over the past two weeks, despite the imposition of new COVID-related restrictions in November. The recovery in growth was explained by stronger spending at several merchant categories:

    • Clothing showed a significant rise in y/y growth, perhaps as the arrival of winter weather prompted consumers to winter-proof their wardrobes. While this type of spending should normally be captured by seasonal factors, it is likely that the usual seasonal spending patterns for items purchased in physical stores have been upended this year.

    • Among other categories, rising y/y growth in the last few weeks was registered in spending on home renovation-related items, automotive products and computer software. Growth in spending on groceries picked up slightly in the lead-up to the imposition of new restrictions across provinces.

    • Most provinces recorded a rise in spending growth recently, but Manitoba, where the strictest lockdown measures were imposed, and to a lesser extent Ontario and Quebec, underperformed the overall growth seen across the Bank’s payments.

    • Going forward, the trend in spending bears a careful watch, as the renewed restrictions across provinces will have their impact during the busiest shopping season. 

The business transactions data has been delayed this week. The coverage of business transactions should resume in the next week’s publication.

2. COVID-19 and the Canadian Economy: Scotiabank Transactions Data

  • We present the data on retail transactions, which captures consumer spending activity in Canada.

  • The data comprises actual observed daily transactions going through debit or credit card payment networks in the retail space.

    • The transactions are anonymized and aggregated to protect the privacy of Scotiabank’s clients.

  • In the current circumstances, comparing the dollar volumes of transactions in the current year and in 2019 can be indicative of the depth of the decline in economic activity in Q2-2020 and help track growth through the re-opening phase in Q3-2020 and beyond.

    • Note that the mapping from the volume of transactions to measures of economic activity (e.g. GDP) is imperfect, and so care must be taken when drawing the implications.

  • Debit and credit card payments can be used to measure the evolution of retail spending at various types of establishments.

    • The transactions can serve as a measure of economy-wide retail spending, and of the extent to which households are resuming pre-COVID levels of activity.

    • Note that the use of electronic payments has increased because of COVID-19, so comparisons to year-ago levels can be misleading. These data are best used to observe directional movements rather than to make specific assessments on the level of activity.

2. COVID-19 and the Canadian Economy: Caveats

There are important caveats to analysis based on the payments data:

  • The data is observed at daily frequency and embeds different types of seasonal patterns.

    • For retail payments, the volume and types of payments are different depending on the day of the week and the season.

    • To smooth out most of the day-to-day seasonality we use a 14-day moving average of the dollar volume of transactions, taking a y/y % change to remove any remaining seasonal patterns related to the calendar date.

  • In addition to seasonality, there is normal payment volatility related to the random nature of the transactions process and the impact of regional and economy-wide events (weather, labour strikes, etc.).

    • The volatility of this nature may or may not be related to economic activity as measured by GDP and so, as mentioned above, care must be taken in drawing inference. 

3. Business Transactions Data: Growth Recovered In the Last Two Weeks

  • Y/Y growth in consumer transactions (available through November 29th), having slowed dramatically in the first half of November, returned to positive territory over the past two weeks, despite the imposition of new COVID-related restrictions in November
    (Chart 1):

    • Both debit and credit transactions have contributed to the overall growth improvement.

    • Some volatility is seen in the data at the end of November, as Black Friday occurred on November 27th this year, compared to November 29th in 2019.

 

3. Business Transactions Data: ABM Failed to Catch Up

  • The volume of debit card transactions through automatic banking machines (ABMs) remained stable relative to the levels of 2019, despite an improvement in card spending (Chart 2).

  • Public health-related restrictions on store operations, consumers spending more time at home, as well as a move away from cash by store owners, could explain lower levels of ABM usage.

 

3. Business Transactions Data: Consistent Pattern Across Provinces

  • Most provinces recorded a rise in spending growth recently, but Manitoba, where the strictest lockdown measures were imposed, and to a lesser extent Ontario and Quebec, underperformed the overall growth seen across the Bank’s payments (Charts 3-6).

  • Going forward, the trend in spending bears a careful watch, as the renewed restrictions across provinces will have their impact during the busiest shopping season.

 

3. Business Transactions Data: Rising Growth is Relatively Concentrated By Sector

  • The recovering growth over the past few weeks was explained by stronger spending at several merchant categories (Chart 7):

    • The large drag from travel-related spending continues to suppress overall growth, with restaurants suffering as the colder weather and new restrictions curtail spending.

 

3. Business Transactions Data: Clothing, Home Improvement Spending Pick Up

  • Among the merchants that were hit hard by the pandemic in the spring, only a few show rising growth recently (Chart 8).

    • Clothing registered a significant rise in y/y growth, perhaps due to colder weather prompting consumers to winter-proof their wardrobes. It is likely that the usual seasonal spending patterns for items purchased in physical stores have been upended this year.

    • Among other categories, rising y/y growth in the last few weeks was seen in home renovation-related items, as well as automotive products.

 

4. Retail Transactions Data: Higher Spending at Software, Large Online Retailers

  •  Among purchases of products related to working or entertaining at home, computer software spending as well as purchases made through large online retailers picked up substantially in the last few weeks (Chart 9).
  • In addition, y/y growth in purchases at grocery stores increased slightly in the lead-up to the imposition of new restrictions across provinces. However, the rise was small compared to the sharp boost seen in March and April.

 

5. Other High-Frequency Indicators Of Activity

Charts 10-23 Google Searches, Various Keywords, Dining and Transportation Data

 

Nikita Perevalov* (Scotiabank Economics)

Roland Merbis, Artur Motruk (Customer Insights & Analytics)

*  Director of Economic Forecasting, 437.775.5137,  nikita.perevalov@scotiabank.com

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