Forward Guidance: Increasing Travel Demand to Drive Spending and Output Growth
The journey returns, hot. Warmer weather, fewer COVID-related health issues, pent-up demand and stock of household savings are all driving a rebound in tourism and hotel spending. Indeed, our latest map tracker showed that, for the first time, the recovery in spending on services (including airfare, accommodation and meals) has outpaced spending on physical goods. That’s not to say spending on goods is slowing — StatCan’s preliminary estimate of March retail sales showed a 1.4% increase. Preliminary numbers for April due next week should look a little weaker, but will still be solid compared to pre-pandemic levels. Single car sales fell in April.
As for goods-producing industries, production capacity limitations, including global supply chain disruptions and labor shortages, will continue to hamper growth. Auto production appeared stronger in March and April. But overall manufacturing sales volumes were unchanged in March, with rising prices driving the entire 2.5% nominal gain. Sales are expected to have risen again in April, with price increases offsetting the drop in hours worked. Headwinds related to the Russian-Ukrainian war and strict lockdowns in China will continue and labor shortages will pose a more long-term structural challenge that will not be easily or quickly resolved. We continue to expect overall GDP growth to slow more significantly once the continued rebound in travel and leisure spending runs its course.
Monitoring data for the coming week:
- Next week’s SEPH labor market data is expected to show still high levels of labor demand in March relative to available supply. Indeed, job postings were almost 70% higher than in February 2020 in March and we expect job vacancy rates in SEPH data to also remain well above pre-pandemic levels.
- Personal consumption spending in the United States is expected to have increased in April given a 0.9% increase in retail sales and an increase in auto sales already reported.