Tracking the Canadian Economy Through COVID-19-Insights from Customer Transactions  

Overview

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

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:

• Updated to January 23^rd, y/y growth in business sector transactions subsided after picking up last week:

  • The spike in payments to the financial industry reversed itself, transactions returning to more normal levels. Manufacturing firms have seen transactions average slightly above year-ago levels for several weeks now, which, if sustained, would be a sign of a tentative recovery starting in the sector after months of subdued payment flow.

  • Overall outgoing payments remained relatively stable in January. Payroll deposits, despite some volatility, continue to run above the levels seen a year ago. Rent totals have been gradually rising, with y/y growth only slightly negative over the past week.

• Consumer card spending growth shifted lower in the last week, as the pickup seen previously gave way to a renewed growth decline (data to January 24^th). Whether the slowdown persists over the next few weeks will determine the consumer spending outlook for the first quarter of 2021, especially if COVID-19 restrictions are extended beyond the current early-February date.

  • By sector, slowing purchases at clothing stores, restaurants and health-related outlets explain most of the dip in growth. However, even online purchases slowed somewhat, perhaps a sign of consumer fatigue after strong increases in spending on these goods during pre- and post-holiday season. 

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

• We present data on retail and non-retail transactions, which capture distinct but related aspects of economic activity in Canada.

• The data comprises actual observed daily transactions going through debit or credit card payment networks in the retail space, and automated funds transfers (AFTs) in the non-retail space.

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

• The AFT payments show bill payments to/from companies in Canada.

  • Incoming payments can be associated with company revenue, and outgoing payments can be associated with costs.

• 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.

• In the current circumstances, comparing the dollar volumes of transactions in the current year to its level of a year ago should help track growth through the re-opening phase. 

3. Business Transactions Data: Growth in Payments Reverses After a Strong Jump

• Updated to January 23^rd, y/y growth in business sector transactions subsided after picking up last week (Chart 1).

  • The spike in payments to the financial industry reversed itself, transactions returning to more normal levels. Manufacturing firms have seen transactions average slightly above year-ago levels for several weeks now, which, if sustained, would be a sign of a tentative recovery starting in the sector after months of subdued payment flow (charts 2-6).

• Automated Funds Transfers (AFT) are used for:

  • rent and mortgage payments;

  • payroll deposits; and

  • other bills. 

3. Business Transactions Data: Retail and Wholesale Payments Stabilized

3. Business Transactions Data: Manufacturing Payments Hold Level with Last Year

3. Business Transactions Data: Growth in Bill Payments Stable In January

• Overall outgoing payments remained relatively stable in January (Chart 7).

• Payroll deposits, despite some volatility, continue to run above the levels seen a year ago. Rent totals have been gradually rising, with y/y growth only slightly negative over the past week (Charts 8 and 9).

• The Canada Emergency Rent Subsidy program has continued to ramp up in January, with over $800M in subsidies approved for 266K applicants as of January 24^th since the inception of the program (see here). 

3. Business Transactions Data: Rent Payments Push Closer to Year-Ago Levels

4. Retail Transactions Data: Spending Declined Again Recently

• Consumer card spending growth shifted lower in the last week, as the pickup seen previously gave way to a renewed growth decline (data to January 24^th). Whether the slowdown persists over the next few weeks will determine the consumer spending outlook for the first quarter of 2021, especially if COVID-19 restrictions are extended beyond the current early-February date (Chart 10).

• Lower credit card spending continued to drag overall purchases lower. 

4. Retail Transactions Data: Card Spending Dipped Across Provinces

• The dip in spending is seen across provinces, but Ontario, Quebec, and Alberta remain the weakest overall (Charts 11-14).

• Growth in the Atlantic provinces continued to outperform the national average in the last few weeks. 

4. Retail Transactions Data: Latest Dip Seen Across Sectors

•  By sector, in addition to travel spending, slowing purchases at clothing stores, restaurants and health-related outlets explain most of the dip in growth (Chart 15).

4. Retail Transactions Data: Clothing, Restaurants and Travel Spending Dips

• Growth shifted down in several hard-hit sectors, including clothing, restaurants and travel. Hardware stores saw y/y spending ease slightly in the past week (Chart 16). 

4. Retail Transactions Data: Online Spending Growth Eases

• Online purchases slowed somewhat, perhaps a sign of consumer fatigue after strong increases in online spending during pre- and post-holiday season (Chart 17).

• Spending continues to migrate increasingly online as the pandemic accelerated a pre-existing trend towards online shopping and on-demand delivery services. 

5. Other High-Frequency Indicators Of Activity

Charts 18-31 Google Searches, Various Keywords, Dining and Transportation Data

6. Caveats 

• 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.

• 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.

  • For non-retail payments, both the day of the week and the season are important. In addition, some payments are tied to the calendar date (e.g. rent payments are made on the first day of each month), some payments have a bi-weekly schedule, etc.

  • 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.

• For business transactions, which are inherently more lumpy compared to retail spending, data towards the end of the sample can be revised as some AFT payments are recorded with a lag. As a result we exclude the last few days of data of business transactions only.

   

Nikita Perevalov* (Scotiabank Economics)

Taha Jaffer, Jason Liang (Data Science and Analytics)
Roland Merbis, Artur Motruk (Customer Insights & Analytics)

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

DISCLAIMER

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.

Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.

Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.

This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.

™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.

Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.