The Kids (Should Be) All Right: BMO Economics Report Shows Increased Spending Power, Even Among Canada's Youth

TORONTO, ONTARIO--(Marketwired - May 10, 2013) - Continued income growth should result in Canada's youth achieving more spending power than their parents over their lifetimes, according to a report released by BMO Economics.

The report shows that an upturn in compensation growth, driven in part by the resource and housing booms, have generated decent gains in spending power since the mid-1990s, averaging just over 1 per cent per annum.

"Since 1996, real median income has turned higher for all age groups, rising 18 per cent to 2010," said Sal Guatieri, Vice President, BMO Capital Markets. "Furthermore, the annual gain of 1.2 per cent was more than twice that in the United States during this period."

The report states that the upturn in median income that began in the mid-1990s corresponds with a similar upward shift in labour compensation, as total real labour compensation increased 24 per cent since 1996 - about seven-times faster than in the previous 15-year period.

"This upward trend in income should continue, albeit at a slower pace in the near term, as the economy returns to full employment next year," added Mr. Guatieri.

Mr. Guatieri noted that even modest further growth in real income would allow young people, who have lost considerable spending power relative to their peers of the 1970s due to severe recessions and growing post-secondary school enrolment, to achieve a greater increase in spending power as they advance into higher-paying jobs during their careers.

Improved Labour Market Conditions Key Driver

Overall, the report credits improved labour market conditions since the mid-90s for the upturn in compensation, with higher rates of employment and labour force participation combined with lower unemployment being the main drivers.

The BMO Business Confidence Report shows that labour market conditions may continue to support income in the near future, with one-in-four (24 per cent) of business owners expecting the size of their workforce to increase in 2013, with large businesses more likely than small businesses to be planning to hire new employees (38 per cent vs. 24 per cent).

Businesses in the services sector are the most likely to be planning to hire new employees (28 per cent increase), with those in construction (13% increase) and agriculture (8% increase) expecting to hold steady.

"Increased spending power means higher demand for a lot of small businesses, particularly in the retail and service sectors," added Mr. Murphy. "To take advantage, Canadian companies should consider making strategic investments to upgrade technology and processes, open up new markets, and invest in people."

The full report is available here: http://www.bmonesbittburns.com/economics/focus/recent/130426doc.pdf.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $542 billion as at January 31, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.