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Canadian households and businesses sitting on $170 billion excess cash hoard: CIBC

CIBC estimates Canadian households are sitting on $90 billion in excess cash, which they've dutifully pumped into their chequing and savings accounts.

Frugal Canadian households and businesses have accumulated a minimum of $170 billion in excess cash throughout COVID-19 and are currently sitting on the largest cash hoard in recorded history, according to CIBC.

In a report published on Tuesday, CIBC deputy chief economist Benjamin Tal and economist Katherine Judge wrote that the disparity is a result of a spike in disposable income not being met with increased consumer spending.

In the second quarter, labour income fell by over $100 billion, but that number was offset by government transfers, which grew by $225 billion and what’s described as “other benefits” — pandemic emergency programs — rising by $151 billion. Instead of spending that money, Canadians hoarded the extra cash, leading to the savings rate increasing from 3.6 per cent to 28.2 per cent as of June.

Tal and Judge estimate that Canadian households, mostly those made up of mid-income and high-income Canadians, are sitting on $90 billion in excess cash, which they’ve dutifully pumped into their chequing and savings accounts.

“That amount of excess cash is by far the largest on record and is equivalent to four per cent of consumer spending,” Tal and Judge wrote.

Canadian businesses, mostly those that have not been damaged by COVID-19, have accumulated $70 billion, Tal and Judge wrote. Their operating accounts are currently up 30 per cent year-over-year and it’s led to cash positions increasing 15 per cent in the same timeframe.

Tal and Judge suspect that much of this growth was fuelled by Canadian Emergency Business Account loans from the federal government. As part of its COVID-19 relief package, the Liberal government provided small businesses with up to $40,000 in zero-interest loans. The economists suspect that many Canadian businesses took these loans as insurance, even if they didn’t expressively need them, and that the cash is sitting in deposit accounts.

“It is very possible that many companies took these loans as insurance, but kept them in deposit accounts — hence adding to their overall cash position,” they said.

Financial Post

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