Consumer Spending Increases (For Now)
Index of Consumer Spending
After a decrease of 1.8 points in the third week of April, the Index of Consumer Spending (ICS) rose to 105.9 points in the first week of May (the week of April 10, 2022 = 100).
- Canadians are spending more on retail and travel services because mandates and restrictions have dropped.
- The ICS rose by 4.1 points to reach 105.9 points in the first week of May. The ICS data are available from the week of April 10, 2022, to the week of May 1, 2022. The ICS fell by 1.8 points to 98.2 points during the week of April 17, signaling a decline in consumer spending. This decrease was short-lived as the ICS increased to 101.8 points in the week of April 24.
- Consumer spending is increasing, partly because provinces’ reopening and summer’s arrival are prompting Canadians to tap into their savings (thanks to government support programs) and to spend more. Consumer spending has also been helped by an increase in consumer confidence in April.
- Higher prices have also contributed to an increase in consumer spending. Inflation has averaged 6.1 per cent so far this year, which means Canadians are paying more for goods and services in 2022 than they did in 2021 and 2020.
- In April, the national unemployment rate was 5.2 per cent and total employment increased by 15,000 jobs. This was a much smaller gain compared with the 75,000 jobs added in March. The slowed growth in employment could be a symptom of full employment (i.e., most people who are able and willing to work are employed) in Canada. In fact, the labour market currently seems to be the Canadian economy’s redeeming quality.
- Consumers have been tapping into their savings trying to keep up with the rise in prices. The low unemployment rate is what gives consumers the confidence to spend their money, while their savings are acting as a buffer for inflation.
- The Bank of Canada raised the overnight rate by 0.5 percentage points on June 1 and has also indicated that interest rates will continue to rise in the coming months. The increase in the overnight rate will encourage consumers to save more and spend less. This is likely to lead to a reduction in consumer spending growth in the coming months.
Alberta
The index fell 5 points to 95 points in the third week of April. But it made a drastic turn-around in the week of May 1, reaching 103.3 points.
Alberta’s ICS plunged 5 points during the week of April 17. According to our ICC, the decline in positive sentiment toward big purchases in March could have been a driving factor behind the 5 points decrease in the ICS. In addition, inflation was 6.3 per cent in April, so part of the increase in consumer spending at the beginning of May can be attributed to higher inflation.
Atlantic Provinces
The index soared 17.7 points between the weeks of April 17 and May 1, the largest increase across regions.
Consumer spending decreased in this region during the week of April 17. Still, it did not take long for consumer spending to recover. The ICS increased 7.9 points just a week later. During the week of May 1, the ICS rose another 9.8 points to reach 115.2 points. The ICC decreased 16.4 points in March and increased by 44.7 points in April. The reduction in consumer confidence in March carried over into early April, which contributed to the decrease in the ICS. The rise in consumer confidence was evident at the end of April running into early May, which is when the ICS sharply increased.
British Columbia
The index increased 6.4 points between the week of April 17 and the week of May 1, offsetting the 6 points drop witnessed during the week of April 17.
The index fell by 6 points to 94 points during the week of April 17, indicating there was a decline in consumer spending. But during the first week of May, the ICS reached 100.4 points. This implies that consumer spending recovered to nearly the same levels witnessed during the week of April 10. British Columbia’s unemployment rate in April increased by 0.3 per centage point from March. What’s more, British Columbians feel less optimistic about future job prospects. This explains the slow recovery in consumer spending, while higher prices explain the increase in consumer spending.
Ontario
The index increased three weeks in a row, reaching 111 points during the week of May 1, 2022.
Ontario’s index rose by 11 points between the week of April 10 and the week of May 1, indicating that consumer spending was increasing. In April, the unemployment rate was 5.4 per cent. Low unemployment contributed to the steady increase in consumer spending. Further, CPI inflation was 6.9 per cent, implying that the increase in prices is also being captured in the ICS. Our Index of Consumer Confidence (ICC) for Ontario declined by 5.4 points in April, suggesting that Ontarians felt less optimistic about the current economic state of the province compared with March. The fall in consumer confidence in April will most likely be evident in the weeks to come in the form of weaker consumer spending.
Quebec
The index declined during the week of April 17 but slowly increased until the first week of May, reaching 99.9 points.
Quebec’s index fell by 3 points the week of April 17. Still, between the week of April 24 and the week of May 1, the index rose 1.1 points, reaching 99.9 points. This means that consumer spending fell in the third week of April. But, at the beginning of May, consumer spending almost recovered. In March, Quebecers felt less confident about their financial situations due to high inflation (6.8 per cent). This lack of confidence spilled over into April, contributing to the decrease in consumer spending.
Saskatchewan–Manitoba
The index surged 10.9 points between the weeks of April 17 and May 1.
The ICS fell 2.2 points to 97.8 points during the week of April 17 in Saskatchewan–Manitoba. This trend did not last long as the ICS rose to 104.6 points just a week later. In the week of May 1, the ICS increased by 4.1 points to reach 108.7 points. In April, Manitoba’s unemployment rate was 5 per cent while Saskatchewan’s was 5.5 per cent. Low unemployment played a role in boosting consumer confidence. This contributed to the increase in consumer spending witnessed at the end of April and the beginning of May.
Territories
The index plummeted 5.9 points during the week of April 17 and never fully recovered, only reaching 95.7 points in the week of May 1.
Consumer spending declined during the week of April 17. Though there were slight improvements in the ICS in subsequent weeks, consumer spending never fully recovered. The ICS only increased 1.3 points and 0.3 points during the weeks of April 24 and May 1, respectively. Out of all the regions, the Territories saw the slowest increase in consumer spending. One reason for this may be that the unemployment rate in Nunavut in April was 9.5 per cent (a 3.3 per cent increase from April 2021). Further, high inflation rates in Yukon and Northwest Territories explain why we see slight improvements in the index between the end of April and early May.
In light of rising interest rates, consumer spending is expected to decline in the coming months.
Powered by Moneris Data Services
Canada’s Gross Domestic Product is largely made up of consumption. One way to gauge how the economy is performing is to look at how much Canadians are spending. Yet across the Canadian economic landscape, there is a lack of readily available consumer spending data. With that in mind, we created the Index of Consumer Spending for provinces and for Canada as a whole. This unique Index is powered by exclusive consumer transaction data provided by Moneris Data Services. Moneris is Canada’s number one payment processor with over 3.5 billion transactions spanning more than 325,000 merchant locations. This index is intended to inform senior policy makers how the country and the provinces are doing. Updates on this index will be released monthly.
Disclaimer: Forecasts and research often involve numerous assumptions and data sources and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.
Please note that our forecast was completed during Russia’s continuing invasion of Ukraine. Although the situation remains fluid, the core elements of the forecast presented in this monthly index stand at publication. For Canada, we expect the largest implications of Russia’s actions will be on commodity and consumer prices. Visit signal49.ca for our latest insights.
The ICS captures credit card and debit card transactions only. Cash purchases, along with other forms of financing, are not represented in the data.