Consumer Spending Rises, But Uncertainty Is Draining Confidence
Index of Consumer Spending
In March, the Index of Consumer Spending (ICS) scored 104.8 points—an increase of 6.2 points from February (April 2022 = 100).
- Each province’s ICS score increased this month. Of the provinces, Nova Scotia led the pack with an 8.9-point increase, while Nunavut led the territories with a 9.8-point improvement.
- The end of the GST/HST tax holiday in mid-February supported March’s increase in the ICS. The end of the temporary tax break meant higher prices on a variety of goods and services, translating into higher total spending.
- Employee wages grew by 3.6 per cent on an annual basis in March, a deceleration compared with the 3.8 per cent pace in February. The impact of slower wage growth on income was partially offset by an 0.4 per cent increase in total hours worked in March.
- Interest rate cuts are gradually adding support to consumer spending. Further relief came in March, with the Bank of Canada cutting interest rates by another 25 basis points. We anticipate one additional rate cut this year.
- The trade war triggered by the U.S. has created new inflationary risk and is sapping consumer confidence. Weak confidence will weigh on consumer demand growth over the coming quarters.
- Compared with a year earlier, the ICS score in March was unchanged. Interest rate cuts have reduced borrowing costs; however, the full effect of these cuts will take time to materialize. Furthermore, a rising unemployment rate reduces consumer confidence and income, leading households to cut back on spending and to prioritize saving.
- Our Index of Consumer Confidence recently reached the lowest point on record. The cause of this weak confidence is significant uncertainty about Canada’s trade relationship with the United States. Our research finds consumers are increasingly pessimistic about their current and future finances as well as future job prospects and are showing a reduced appetite for major purchases. Weaker confidence is a precursor to decreasing consumer spending with households redirecting a greater portion of income toward precautionary saving.
- Our Index of Business Confidence also reveals higher uncertainty and pessimism among Canadian businesses. More than 75 per cent of business executives surveyed expect Canada’s economic conditions to worsen over the next six months. This suggests both weaker investment and a weaker appetite for hiring. Reduced hiring activity would result in a higher unemployment rate and softer household income growth. Consumers respond to a less robust labour market and income growth by reducing discretionary spending in favour of precautionary saving.
The trade war triggered by the U.S. has created new inflationary risk and is sapping consumer confidence.
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.