Consumer Spending Edges Lower Despite Increase in Employment Levels
Index of Consumer Spending—Edition 7
The Index of Consumer Spending averaged 95.6 points in October, a slight drop of 0.2 points from September (the week of April 10, 2022 = 100).
- Consumer spending growth remained flat throughout October but edged lower compared with September. After falling to an all-time low of 95.0 points during the week of September 25, the Index of Consumer Spending (ICS) rose 1.3 points in the following two weeks, reaching 96.3 points. This upward trend was short-lived, as the index fell to 95.8 points during the week of October 16. Data on the ICS are available from the week of April 10, 2022, to the week of October 16, 2022.
- The index has remained below the benchmark of 100.0 points for 18 consecutive weeks. The ICS also averaged lower in October than in the previous five months, indicating that consumer spending growth continues to trend downward. According to our Index of Consumer Confidence (ICC), Canadians felt less optimistic about future finances and less inclined to make big-ticket purchases in October compared with September. This finding explains why consumer spending growth edged lower.
- The national unemployment rate held steady at 5.2 per cent, and employment levels increased by 108,300 jobs in October. Industries such as manufacturing, construction, and accommodations and food services recorded employment gains. Growth in consumer spending would have been much weaker had employment growth not been strong.
- Inflation fell to 6.9 per cent year-over-year in September. However, consumers still feel the squeeze of inflation, especially at grocery stores. Food inflation increased to 10.3 per cent. Canadians continue to adjust their spending habits to cope with elevated prices. Purchasing power remains a concern for households, which has also contributed to the decline in consumer spending growth.
- Inflation is too high for the Bank of Canada’s comfort. The Bank raised its target for the overnight rate to 3.75 per cent in October to try to bring inflation down within the target range. Signs show that the recent rate hikes are working. Still, it could take up to 18 to 24 months for changes in monetary policy to be felt throughout the economy. Consumer spending has cooled, and the economy is losing steam. Many Canadians, especially overleveraged Canadians, have started feeling the impacts of recent rate hikes. Any further rate increases could have profound effects on consumer spending, potentially even tipping the economy into a recession.
Atlantic Provinces
The index averaged 102.6 points in October, a drop of 0.4 points from September.
The region’s index fell to 98.7 points in the week of September 25 but jumped 6.4 points over the following two weeks to reach 105.1 points. The index then retreated to 104.5 points during the week of October 16. The unemployment rate in this region averaged lower in October (7.3 per cent) than in September (7.7 per cent). Further, employment levels increased by 10,200 jobs across the region. Even though the labour market conditions improved compared with the previous month, consumers still faced elevated prices—and now even higher interest rates. These increases caused consumers to feel less optimistic about current and future finances, ultimately leading to a decline in consumer spending growth.
Quebec
The index increased to 95.3 points in October, averaging 0.1 points higher than in September.
The index increased to 95.3 points in October, averaging 0.1 points higher than in September.
Quebec’s index declined 3.9 points between the weeks of September 25 and October 2, falling to an all-time low of 92.6 points. But the downward trend didn’t last long, as the index recovered 5.3 points over the following two weeks to reach 97.9 points in the week of October 16—a 12-week high. Consumer confidence declined in October, but the percentage of Quebecers feeling optimistic about current finances increased. Quebec saw employment gains of 27,800 jobs in October and a decline in the unemployment rate (4.1 per cent), which is why growth in consumer spending edged up this month.
Ontario
The index averaged 90.3 points in October, a slight drop of 0.1 points from September.
After falling to 89.4 points during the week of September 25, Ontario’s index rose to 91.2 points in the week of October 9. However, the index retreated to 89.7 points during the week of October 16, offsetting the gains recorded at the beginning of the month. Inflation fell to 6.7 per cent year-over-year in September, but Ontarians are still coping with elevated prices. The unemployment rate rose to 5.9 per cent in October, which played a role in the slowed consumer spending growth recorded this month. As well, higher interest rates have induced a change in consumer buying behaviour. The proportion of Ontarians who believed October wasn’t a good month to make big-ticket purchases increased, contributing to the decelerated growth in consumer spending.
Manitoba–Saskatchewan
The index averaged 111.6 points in October.
The region’s index remained relatively flat in October but averaged lower than in September. Inflation rose in Manitoba (8.1 per cent) and Saskatchewan (7.1 per cent). Further, the region’s unemployment rate averaged higher in October (4.6 per cent) than in September (4.3 per cent). Elevated prices, along with higher interest rates, have had a profound impact on consumer confidence. Households in this region feel less optimistic about current and future finances, which is why consumer spending crept down this month.
Alberta
The index edged up in October, averaging 0.7 points higher than in September.
Alberta’s index remained flat throughout October but averaged higher than in September. Year-over-year inflation rose to 6.2 per cent in September. Gasoline prices have eased, but food costs continued to climb. The rising costs of living have impacted consumer confidence. As well, growing concerns over current and future finances have weighed negatively on consumer spending. However, Alberta’s labour market has been a bright spot in its economy—the unemployment rate fell to 5.2 per cent in October, and employment levels increased by 6,900 jobs. Growth in consumer spending would have been much weaker had labour markets not been tight.
British Columbia
The index averaged 95.0 points in October, a decrease of 0.8 points from September.
Consumer spending growth was relatively unchanged this month. British Columbia’s index hovered around 95.3 points between the weeks of September 25 and October 9 but retreated to 94.2 points during the week of October 16. The province’s unemployment rate fell to 4.2 per cent in October, but the tight labour market wasn’t enough to expand growth in consumer spending. According to our ICC, British Columbians felt less optimistic about current and future finances in October—mainly because of high inflation (7.7 per cent in September) and higher interest rates. Ultimately, the decline in consumer confidence explains why consumer spending edged lower in October.
Territories
The index averaged 102.2 points in October, an increase of 0.9 points from September.
The region’s index trended downward this month but edged up compared with September. Between the weeks of September 18 and October 2, the index jumped 3.1 points to 103.7 points. However, between the weeks of October 2 and October 16, the region’s index slipped 4.0 points to 99.7 points, offsetting the gain witnessed in the previous two weeks. The region’s inflation rate averaged 6.7 per cent in September, up from 6.3 per cent in August. Growth in consumer spending accelerated between the weeks of September 25 and October 2 because of the rise in inflation. The unemployment rate also increased in Yukon (3.3 per cent), the Northwest Territories (5.8 per cent), and Nunavut (14.8 per cent). Labour market conditions worsened in the territories, which explains the decline in consumer spending growth between the weeks of October 2 and October 16.
Canadians continue to cope with elevated prices, especially at grocery stores.
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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.