Canada’s Largest Provinces Drag Down Consumer Spending
Index of Consumer Spending
The Index of Consumer Spending (ICS) decreased to 121.1 points in June, this year, a 0.4-point decrease from May’s revised-up ICS score of 121.5 points (April 2022 = 100).
- Although most provinces and territories showed an increase in their respective Index of Consumer Spending (ICS) scores, from May to June this year, decreased spending in Canada’s two largest provinces—Ontario (down 2.5 percentage points) and Quebec (down 4.1 percentage points) —weighed down the ICS over the period.
- On a seasonally adjusted basis, the national unemployment rate rose in June by 0.2 percentage points to 6.4 per cent, again, mainly due to the situation in Central Canada, with Ontario’s unemployment rate increasing by 0.3 percentage points, to 7.0 per cent, and Quebec’s rising by 0.6 percentage points, to 5.7 per cent.
- In addition to the higher unemployment rate, labour market cooling resulted in weakening wage growth, a trend we expect to continue through next year. Slower wage growth will hurt spending over this time, despite lower interest rates presenting better conditions for consumption.
- Inflation moderated slightly in June, with the consumer price index (CPI) at 2.7 per cent, year-over-year, a 0.2 percentage point decrease from May.
- Certain retail goods groups were deflationary in June, with prices contracting by 3.1 per cent for clothing and footwear and 0.9 per cent for household operations, furnishings and equipment. The ICS tracks dollar amounts spent, so although consumers may be buying the same or even more total units of goods, this price deflation could skew the index downwards.
- Despite an interest rate cut in June, consumers are still holding back on spending as shelter prices continue to strain household budgets. Although some households on fixed rate mortgages have yet to be affected by shelter price inflation, they are likely holding back on some spending as they prepare for a price shock from higher rates at mortgage renewal.
- The household savings rate level is estimated to have peaked at 7.5 per cent in the second quarter of 2024 before gradually coming down with interest rates.
- We estimate that retail sales will grow by a modest 1.8 per cent this year—its slowest annual rate of growth since 2021. But we expect this to pick up significantly with sustained growth above 3.0 per cent, from 2025 to 2028, as economic conditions improve.
Consumer spending declined in Ontario and Quebec, which weighed down on the ICS in June.
Powered by Moneris Data Services
The Index of Consumer Spending 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. Our index tracks incremental changes in net transaction volume month-over-month from a set starting point (April 2022 = 100), enabling us to gauge economic activity levels across the country and provide insights into how the Canadian economy is performing coast to coast.
Updates on this index will be released monthly.
The Index of Consumer Spending’s (ICS) methodology has been revised for releases from January 2024 onwards. The ICS no longer tracks the weekly year-on-year changes in consumer spending. Instead, the ICS now tracks the incremental changes in net transaction volume month-over-month, from a set starting point (April 2022 = 100).
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.