The Canada Child Benefit isn’t boosting sales like some retailers hoped

Some 3 million Canadian households started receiving cheques in July, but it hasn’t yet produced clear gains in household spending

 
Shoppers at a mall
Shop ’til they drop? Not exactly. Canadian consumer confidence seems on shaky ground. (Chris Young/CP)

In July, Prime Minister Justin Trudeau’s government sent enhanced payments worth hundreds of dollars to more than 3 million households. The Finance Department says the Canada Child Benefit will result in increased monthly incomes for nine of 10 families that previously received federal contributions. Recipients will collect an average increase of $2,300 in the 2016-17 benefit year, according to Finance.

Trudeau never really talked about his overhaul of the family benefit program as economic stimulus, but that didn’t stop others from anticipating a jolt in household spending. “The rollout of the Canada Child Benefit is anticipated to start providing additional support to household spending in the second half of 2016,” the Bank of Canada wrote in its latest quarterly report on the economy. There now is enough data available to make an early assessment of those hopes. Anyone who thought heavily indebted households would take the money and run to their nearest malls will be disappointed.

Retail sales increased 0.6% in September from August, the first gain in four months, Statistics Canada reported on November 22. Seven of eleven categories posted higher sales, yet the stronger headline number was almost entirely the result of a surge in purchases of new cars. Otherwise, the increases were broad, but tiny.

Automobile sales don’t tell us much about the stimulative effect of the Child Benefit payments. They probably have more to do with the level of interest rates and manufacturers’ discounts. Sales at gasoline stations rose 0.9%, but that had more to do with higher oil prices than stronger demand. To get a sense of whether the Benefit checks are affecting demand, one must look at discretionary spending. That picture looks something like this:

Chart showing Canada household discretionary spending, June to October, 2016

Those lines represent change in the five biggest retail categories since June, excluding automobiles and gasoline stations. There was upward movement, suggesting the Child Benefit will provide some economic support in the months ahead. Still, these aren’t big changes. At $5.6 billion, sales at general merchandise stores were about $100 million higher than in September than a year earlier, but essentially unchanged from June this year. “The underlying trend in Canadian retail sales remains lacklustre,” said Nick Exarhos, an economist at CIBC World Markets in Toronto. “That’s disappointing, given the recent stretch of healthy employment gains, and the fact that some families have been receiving enhanced cheques from Ottawa since July.”

To avoid further disappointment, it might be necessary to stop expecting much of a pop in gross domestic product from the Canada Child Benefit. That’s not an argument against the program, however. Consider “Samantha,” the Victoria-based single mom who makes an appearance in Finance Minister Bill Morneau’s autumn fiscal update. Samantha makes $30,000 a year. According to the update, she will use the extra $533 per month she is receiving in family benefits to buy her four-year-old son some school books, register him in swimming lessons, and increase contributions to her son’s Registered Education Savings Plan. Trudeau, Morneau and others in the government have been clear that their tax cuts and benefit enhancements are primarily about relieving anxiety, not driving demand. As recent events in the United States attest, that is a worthy policy goal. Short-term economic stimulus will have to come from somewhere else.


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