Canada’s lofty disposable income growth made a sharp pull back in Q3 last year. US Federal Reserve data shows real disposable income generally improved in the latest numbers. Canada was a notable exception, making a sharp quarterly drop. Even with the drop, the country manages to squeeze out the biggest gains of any country since 2005. There’s one odd issue though. Almost a third of those gains occurred in the second quarter of 2020, in the pandemic’s first full quarter.
A Third of Canada’s Disposable Income Growth Happened In One Quarter
Canadian disposable income made a decline, partially reversing the steep increases made during the pandemic. Real disposable income is down 3.87% in Q3 2020, bringing gains to 9.06% over the past year. Since 2005, inflation adjusted income is 43.81% higher. This is both the biggest quarterly drop, and the biggest annual increase in the G7. It’s also the biggest gain since 2005. The income growth is a little odd in Canada though, and needs some unpacking.
G7 Real Disposable Income ChangeThe inflation adjusted change in G7 disposable income in Q3 2020, compared to the previous quarter. Source: US Federal Reserve, Better Dwelling.
Over a third of Canada’s disposable income growth occurred in one single quarter. That quarter saw the most layoffs in the history of the country. From Q1 to Q2 in 2020, real disposable income growth increased by 15.75 points. This represented 35.95% of the total increase since 2005. The reason? It was a temporary surge in government transfers that came in at twice the amount of income that was lost. To put it bluntly, many people made more money on government assistance than they did at work. However, this was temporary, and will fade as things recover.
US Real Disposable Income Up 28% Since 2005
US disposable income also pulled back in the latest data, but not nearly as much as Canadian incomes. Real disposable income was down 0.57% in Q3 2020, bringing the annual movement 6.68% higher. From 2005, real disposable incomes are now up 28.12% from 2005. This is the only other G7 country to see a decline in Q3. There was also a significant increase of disposable income at the beginning of the pandemic, due to non-targeted transfers. However, it represented a more modest 12.61% of the gains made since before the Great Recession.
G7 Real Disposable Income IndexAn inflation adjusted index of G7 disposable income. Source: US Federal Reserve, Better Dwelling.
Italy Is The Only G7 Country To See An Annual Drop
There was only one G7 country to see disposable income drop over the past year, and it was Italy. Italy saw real disposable incomes rise 1.62% in Q3 2020, bringing annual change 1.53% lower than a year before. Real incomes have dropped ~7% since 2005. Incomes still haven’t recovered from the Great Recession.
Canada’s real disposable income made the biggest drop in the G7, but also the largest annual gain. This was largely due to government transfers, which have since been reduced. As the pandemic ends, it may be the only time in history where incomes increase as the economy gets worse, and drops when the economy recovers.
Like this post? Like us on Facebook for the next one in your feed.