Consumer Spending Growth Weakens as the Unemployment Rate Rises
Index of Consumer Spending
The Index of Consumer Spending averaged 96.4 points in August, a 1.9-point drop from July (the week of April 10, 2022 = 100).
- Consumer spending growth has been trending downward in recent months and continued throughout August. After reaching 99.9 points in the final week of July, the Index of Consumer Spending (ICS) fell for three straight weeks to a new record low of 95.2 points during the week of August 14. The index recovered only 0.5 points toward the end of August and remained below the benchmark of 100.0 points for the 10th consecutive week. Data on the ICS are available from the week of April 10, 2022, to the week of August 21, 2022.
- Canadians continue to alter their budgets to deal with high prices. According to our Index of Consumer Confidence (ICC), optimism over current finances declined, and many believed that August wasn’t a good month to make major purchases. Demand for durable goods has been trending downward, while expenditures on services remained robust. Growth in consumer spending would have been weaker had spending on high-contact services not been strong.
- The Bank of Canada has acted aggressively with its tightening monetary policy. We expect the Bank to be successful in getting inflation under control. We expect year-over-year inflation to continue dropping after it fell to 7.6 per cent in July. Although inflationary pressures are easing, Canadians are still paying more for a basket of goods today than they were 2020 and 2021. The Bank has indicated that further interest rate increases are on the horizon, meaning that consumers will likely save more and spend less.
- Employment levels declined by 40,000 jobs while the labour force participation held steady. The nation’s unemployment rate increased for the first time in seven months, rising to 5.4 per cent in August. This increase in unemployment contributed to the decelerated growth in consumer spending recorded this month. With the Bank of Canada increasing its target for the overnight rate to 3.25 per cent, we expect consumer spending growth to continue to decline and the national unemployment rate to rise further in the coming months.
Atlantic Provinces
The index averaged 105.0 points in August, a 3.5-point drop from July.
The region’s index declined for four straight weeks in August. Between the week of July 24 and the week of August 21, the index sank 7.1 points to 102.0 points. Consumer confidence in this region improved month over month. However, the large decline in the ICC recorded in July could be a reason for the slowed growth in consumer spending in August. Further, the unemployment rate in this region averaged 1.1 per cent higher in August (8.3 per cent) than in July (7.2 per cent). The high unemployment rate combined with higher interest rates also contributed to weaker spending growth.
Quebec
The index averaged 0.5 points lower in August than in July.
In the first two weeks of August, Quebec’s index fell by 3.1 points to 95.2 points. In the second half of the month, the index recovered 1.0 points to reach 96.2 points. As a result, Quebec’s index averaged only 0.5 points lower in August (96.0 points) compared with July (96.5 points), meaning that year-over-year spending growth was relatively flat this month but edged lower compared with July. Purchasing power remains a key concern, as Quebecers felt less confident about their current finances in August. This reduced confidence, along with the decline in sentiment toward major purchases, played a role in the slight drop in spending growth this month.
Ontario
The index averaged 91.3 points in August, a 2.1-point drop from July.
Ontario’s index has been trending downward since May. The ICS inched up 0.1 points to reach 94.7 points during the first week of August. However, the index declined by 5.0 points in the two weeks that followed, falling to a record low of 89.7 points during the week of August 14. The province’s unemployment rate increased to 5.7 per cent, and employment levels fell by 19,200 jobs, leading to a decline in optimism toward current and future finances. Still, consumer confidence edged up this month, explaining the 1.0-point increase in the ICS to 90.7 points at the end of August. Ontario’s index has remained below the benchmark of 100.0 points for 11 consecutive weeks. This finding indicates that consumer spending growth has declined and has yet to recover. High inflation and interest rate hikes have induced a change in spending behaviour. With further interest rate increases on the horizon, we expect growth in consumer spending to continue trending downward.
Manitoba–Saskatchewan
The index averaged 111.7 points in August, a decline of 2.2 points from July.
The region’s index declined by 5.9 points between the weeks of July 24 and August 14, falling to 110.5 points. During the week of August 21, the ICS recovered only 0.4 points. Still, the index remained well above the benchmark of 100.0 points, meaning that consumer spending growth was stronger in August than in April. However, growth in consumer spending has been trending downward. Employment losses in this region amounted to 12,000 jobs, and the unemployment rate increased in both Manitoba (5.3 per cent) and Saskatchewan (4.9 per cent). These declines caused consumers in this region to feel less optimistic about future finances, ultimately leading to the slowed growth in consumer spending.
Alberta
The index averaged 100.3 points in August.
Alberta’s index declined for four straight weeks in August, falling below the benchmark of 100.0 points for the first time since April. Between the weeks of July 24 and August 21, the index plummeted 6.7 points to 98.6 points. The index averaged 3.6 points lower in August (100.3 points) than in July (103.9 points). The slowed growth this month means that Albertans are adjusting their budgets to deal with the impacts of rising interest rates. In addition, the province’s unemployment rate jumped to 5.4 per cent in August, which has also induced a change in spending behaviour, leading to a decline in the ICS.
British Columbia
The index averaged 0.9 points lower in August than in July.
British Columbia’s index averaged 96.5 points in July and 95.6 points in August, suggesting that consumer spending growth edged lower in August compared with July. The ICS declined 4.6 points between the weeks of July 24 and August 14, falling to 94.4 points. However, during the week of August 21, the index recovered 0.8 points to reach 95.2 points. But with the province’s unemployment rate increasing to 4.8 per cent and employment levels declining by 28,000 jobs, many British Columbians felt less optimistic about current finances and future job prospects, ultimately leading to a decline in consumer spending growth in August.
Territories
The index averaged 101.7 points in August, a 2.1-point drop from July.
The region’s index trended downward in August. Between the weeks of July 24 and August 7, the ICS rose 5.3 points to reach 105.5 points. However, consumer spending growth slowed in the two weeks that followed. The index plummeted 7.4 points between the weeks of August 7 and August 21, offsetting the gain from the beginning of the month. Consumers in this region are still coping with elevated prices. Gasoline prices in cities like Whitehorse and Yellowknife were well above the national average in July, meaning that many consumers had to adjust their spending to deal with high fuel prices. Despite the unemployment rate in this region averaging 0.5 per cent lower in August (6.0 per cent) than in July (6.5 per cent), consumer spending growth declined. One reason for this decline could be that consumers are being cautious about their spending habits as they’re now facing relatively high prices and increased interest rates.
Many Canadians already feel the impacts of interest rate hikes and will look to spend less 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.