We know that when pocketbooks are tight, people tend to shift their spending—but exactly how much correlation is there between Canadians’ spending habits and how much they make?
By Walter Bolduc, Economist, The Conference Board of Canada
Article provided by Moneris (Published on November 6, 2024)
As part of its latest partnership with the Conference Board of Canada, Moneris is pleased to present the following authoritative insights from their Index of Consumer Spending (ICS) which has been powered by Moneris® Data Services. The index is a measure of weekly year-over-year changes in transaction data, providing insights into the performance of the Canadian economy.
Index weakens in the third quarter
- The ICS averaged 114.0 points in the third quarter of 2024, 4.3 points lower quarter-to-quarter.
- On a month-to-month basis, the quarter started sour, dropping from 121.1 points in June to 118.0 points in July. The index continued to lose steam in August, with the ICS dropping to 110.4 points. A rebound appeared to be on track in September, with the index at 113.5 points through the first two weeks of the month.
- Since Q3, the Bank of Canada has cut its interest rate by a further 50 basis points (25 basis points in July and September). Lower interest rates stimulate spending; however, this process requires time. We expect to see the bulk of the impact resulting from these cuts to invigorate future quarters.
- Consumer price growth has seen meaningful easement so far this quarter. On a year-over-year basis, the consumer price index (CPI) rose 2.5 per cent in July and two per cent in August. At the time of this writing, CPI estimates for September have not yet been released; however, colder labour markets and weaker consumer spending indicate that September’s growth shouldn’t see any major deviations from this trend. (Ed.’s Note: The CPI rose 1.6 per cent in September, matching the trend of slowing growth).
- One of the bigger shopping months of the year is August due to the surge from back-to-school shopping. However, this month was considerably lower this year than it was the year before.
Key insights
The unemployment rate is nearing its peak. The unemployment rate has been gradually increasing throughout the year. Over the past three months, the unemployment rate hit an average of 6.5 per cent compared to 6.3 per cent in the second quarter. The Conference Board of Canada forecasted that the unemployment rate will reach an average of 6.7 per cent in the final quarter of 2024. However, this is expected to be the peak. As the impact of lower interest rates continues to work their way through the economy, the labour market will pick up, which will bolster spending.
Wages are still growing, but not like they used to. As part of the cooling labour market, employee wage growth has slowed down. In the third quarter, we estimate wages rose four per cent year-over-year, the slowest rate in over two years. With the labour market continuing to cool and inflation concerns fading well into the rearview, wage growth will continue moderating, dampening consumer spending in 2025 despite more favourable job prospects.
Belts are tighter but will loosen. The household savings rate rose early this year, but The Conference Board of Canada forecasts it will gradually decline in the second half of 2024 and heading into 2025. Taking a bite out of savings is household debt, which is forecast to have increased by 2.1 per cent in the third quarter due to higher mortgage debt. As interest rates continue declining, growth in interest payments will cool, freeing up savings for discretionary spending. However, it is important to note that many households will still be renewing mortgages at much higher interest rates than five years ago, limiting the potential upside of spending over the next two years.