Households Burdened by Inflation, but Consumer Spending Growth Steady
Index of Consumer Spending
The Index of Consumer Spending averaged 95.8 points in September, a slight drop of 0.6 points from August (the week of April 10, 2022 = 100).
- Consumer spending growth remained relatively unchanged in September. After reaching 95.7 points in the final week of August, the Index of Consumer Spending (ICS) fell to 95.5 points in the week of September 11. However, toward the end of the month, the index recovered 0.5 points. Data on the ICS are available from the week of April 10, 2022, to the week of September 18, 2022.
- The index has trended downward since May and has remained below 100.0 points for 14 consecutive weeks. This finding indicates that consumer spending growth has dampened and has yet to recover. Demand for durable goods continues to fall as consumers shift their spending toward services. Growth in consumer spending would have been much weaker had expenditure on travel, entertainment, and services not been strong. According to our Index of Consumer Confidence (ICC), many Canadians continue to have a pessimistic view of current finances, leading several to believe September wasn’t a good month to make major purchases.
- The national unemployment rate fell to 5.2 per cent in September, primarily because fewer people were actively searching for work. Manufacturing saw many job losses, while educational services recorded solid employment growth. Ultimately, employment held steady, which partially explains why growth in consumer spending remained flat throughout September.
- Inflation fell to 7.0 per cent (year over year) in August, and we expect it to fall further in September. Fuel prices declined, providing some relief for Canadians. However, consumers still face elevated prices, especially at grocery stores. Food inflation rose to 9.8 per cent (year over year) in August. Canadians continue to worry about their purchasing power and are altering their spending patterns to cope with inflation.
- The Bank of Canada has indicated that further interest rate hikes are on the horizon. Many households, especially those highly indebted, will feel the impact of these rate increases and will look to spend less. We expect growth in consumer spending to continue trending downward into the winter months.
Alberta
The index averaged 100.2 points in September, a slight drop of 0.1 points from August.
Although marginally lower in September than in August, Alberta’s index trended upward this month. After falling to 98.6 points during the week of August 21, the index increased for two straight weeks to reach 100.4 points in the week of September 4. The index remained unchanged before rising to 101.2 in the week of September 18. Gasoline prices have declined, providing some relief for consumers. In cities like Edmonton and Calgary, gasoline prices were 147.3 cents and 153.0 cents per litre, respectively—prices that are lower than the national average of 169.6 cents per litre. Meanwhile, positive sentiment toward major purchases increased this month, which may have contributed to the slight rise in the ICS toward the end of September. However, consumer spending growth is still weak compared with May, June, and July. Many Albertans have felt the squeeze of inflation and have altered their budgets accordingly.
Atlantic region
The index averaged 103.0 points in September, a 2.0-point drop from August.
The region’s index trended downward in September. After reaching 102.0 points during the week of August 21, the index increased by 2.5 points in the two following weeks. However, toward the end of September, consumer spending growth weakened. The ICS fell to 100.8 points during the week of September 18, offsetting the gain recorded at the beginning of the month. In this region, inflation averaged 7.5 per cent in August, while the unemployment rate averaged 7.7 per cent in September. Consumers in these provinces face higher prices and higher unemployment than the national average. This reality, along with the September decline in optimism about big-ticket purchases, is why consumer spending growth slowed in the region.
British Columbia
The index averaged 95.8 points in September, an increase of 0.2 points from August.
British Columbia’s index remained relatively unchanged from August. The index rose to 96.2 points in the first week of September but fell to 95.9 points toward the end of the month. Between April and September, the index surpassed the benchmark of 100.0 points on only three occasions: in the weeks of May 1, May 8, and June 5. Further, the index averaged lower in September than in April, May, June, and July. This finding indicates that consumer spending growth has cooled and has ground to make up to reach the levels recorded in previous months. British Columbia’s unemployment rate fell to 4.3 per cent, and employment levels increased by 32,900 jobs in September. Consumer spending growth would have been weaker had labour markets not been tight.
Ontario
The index averaged 90.4 points in September, a 0.9-point decrease from August.
Ontario’s index was relatively flat in September but averaged lower than in August. The index hovered just above 90.0 points throughout September, making 15 consecutive weeks below the benchmark of 100.0 points. Interest rate hikes and elevated prices are causing Ontarians to adjust their spending habits, which is evident in the consumer spending data. Further, the unemployment rate increased to 5.8 per cent, and employment levels fell by 31,500 jobs in September. This explains the sluggish growth in consumer spending recorded this month.
Quebec
The index averaged 0.8 points lower in September than in August.
After reaching 96.2 points during the week of August 21, Quebec’s index fell for three straight weeks to an all-time low of 94.1 points in the week of September 11. The index recovered 2.4 points in the following week to reach 96.5 points. The index was higher toward the end of September than at the end of August, but at 95.2 points in September, it still averaged lower this month than in August. This finding indicates that spending growth edged lower this month compared with last month. According to our ICC, optimism toward job prospects and finances increased in September. However, the increase in confidence wasn’t significant enough to affect spending growth. Quebecers are still coping with high inflation (7.1 per cent) and now higher interest rates, meaning consumer spending growth was stagnant this month.
Saskatchewan–Manitoba
The index held steady at 111.7 points in September.
The region’s index remained at 111.9 points for two weeks before falling to 111.0 points during the week of September 11. The index recovered 0.9 points in the week that followed, returning to 111.9 points. Inflation averaged 7.4 per cent in August, meaning that consumers in this region are still coping with elevated prices. According to our ICC, optimism over current finances declined in September, which explains the tepid spending growth this month. The region’s unemployment rate averaged 4.3 per cent in September. Consumer spending growth would have been much weaker had the region’s labour market not been so tight.
Territories
The index remained steady at an average of 99.1 points.
The region’s index trended downward in September. Between the week of August 28 and the week of September 4, the index rose by 2.4 points to reach 103.4 points. The ICS retreated 3.1 points in the week that followed and recovered only 0.3 points during the week of September 18. Ultimately, growth in consumer spending fluctuated throughout September but averaged lower than in August. The unemployment rate in this region averaged 6.3 per cent in September, an increase of 0.3 per cent from August. This rate, along with the fact that gasoline prices averaged higher in this region compared with the national average, contributed to the slowed growth in consumer spending.
Inflation seems to have peaked. However, Canadians still face elevated prices (and now higher interest rates). We expect weaker growth in consumer spending in the coming months.
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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.