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 March 7^th, business sector transactions continued to signal expanding activity, but with signs of slowing growth in incoming transactions more recently:

  • Growth in incoming payments in wholesale, retail and manufacturing sectors subsided in the last few weeks. Firms in the wholesale sector enjoyed a strong influx in transactions in mid-February, which seems to have run its course now. Growth in manufacturing payments has fallen below last year’s levels recently.

  • Growth in outgoing payments remained stable, with steady payroll and rent payments, the latter likely in response to the pickup in the emergency rent subsidy program (CERS).

• Growth in consumer card spending fluctuated around zero in early March (data to March 9^th), recovering after a restrictions-induced slowdown in late December and January:

  • The pattern of spending is consistent across provinces and spending categories, with growth in purchases of clothing and hardware rising significantly since mid-February’s re-opening.

  • Growth in spending on digital goods and at large online retailers has downshifted slightly, but continues to run at significantly higher levels than last year. 

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: Business Payment Growth Slightly Weaker Recently

• Business sector transactions continued to signal expanding activity, but with signs of growth slowing in incoming payments more recently (Chart 1):

  • A slowdown in payments is partly driven by weaker spending on communications and other utilities, which includes cable and a range of services such as water, gas and hydro.

  • Growth in incoming payments in wholesale, retail and manufacturing sectors subsided in the last few weeks. Firms in the wholesale sector enjoyed a strong influx in transactions in mid-February, which seems to have run its course now. Growth in manufacturing payments has fallen below last year’s levels recently (Charts 2-6). 

3. Business Transactions Data: Wholesale/Retail Transactions Normalize

3. Business Transactions Data: Manufacturing Payment Flow Weaker

3. Business Transactions Data: Growth in Bill Payments Positive

• Growth in outgoing payments remained stable, with steady payroll and rent payments, the latter likely in response to the pickup in the emergency rent subsidy program (CERS) (Charts 7-9).

• The Canada Emergency Rent Subsidy program continued to ramp up through February, with the most recent data showing over 1.7 billion dollars approved so far (data to March 7, 2021).

• Increases in payroll deposits were in line with a muted impact of the latest round of restrictions seen so far in the labour markets outside of retail and hospitality sectors. 

3. Business Transactions Data: Rent/Payroll Payment Growth Remains Strong

4. Retail Transactions Data: Total Spending Growth Fluctuated Around Zero Recently

• Growth in consumer card spending fluctuated around zero in early March (data to March 9^th), recovering after a restrictions-induced slowdown in December and early January (Chart 10).

• Spending on credit explained most of the recovery since mid-February. 

4. Retail Transactions Data: Growth in Hard-hit Provinces Improves the Most

• Since mid-February, spending has improved the most in provinces that imposed the strictest lockdowns in late December and early January (Charts 11-14). 

4. Retail Transactions Data: Travel Spending Starting to Inch Higher

• Categories with positive y/y growth remained relatively stable, but the sectors that remained under water since the pandemic have shown the most improvement since mid-February (Chart 15). 

4. Retail Transactions Data: Clothing, Hardware Spending Jump Higher

• Growth in purchases of clothing and hardware has been rising significantly since mid-February’s re-opening (Chart 16).

• Home renovation spending continued to leap higher, in line with a red-hot Canadian housing market and the increased desire to improve living space with more time spent at home. 

4. Retail Transactions Data: Purchases of Digital Media Moderated Recently

• Growth in spending on digital goods and at large online retailers has downshifted slightly, but continues to run at significantly higher levels than last year (Chart 17). 

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 

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