Canadian consumers are pulling back this summer after years of pandemic revenge spending, according to a new report by RBC Economics.
Retail sales likely continued to decline again in July after adjusting for inflation, implying real retail sales fell in six of the first seven months of the year. Appetite for discretionary goods remained limited, though July’s decline was broad-based. A decrease in spending on clothing, groceries and gasoline accounted for the fall, said the report.
Borko Manigoda
“Consumers are likely hosting fewer extravagant dinner parties and spending less time on patios this summer. Cardholders have spent less on groceries for three consecutive months, but real spending at restaurants was also significantly weaker in July,” it said. “Many are also embarking on fewer road trips so far. Real gasoline spending fell in both June and July, but spending on hotels held steady over the last three months.
“Home-related spending was slightly higher in July after home resales picked up in June, following the first interest rate cut from the Bank of Canada in four years. However, home-related spending (on renovations and landscaping) has declined since April based on a three-month moving average. It remained 9% below pre-pandemic levels in June even though resale activity has improved since April.
“Consumer spending continues to show signs of stress as many wait for the impact of the BoC rate cuts to filter through to mortgage interest costs. Interest rates are still high. Canadians renewing fixed-rate mortgages in 2024 still face significantly higher rates, which will cut into broader purchasing power. However, as the BoC continues its path to lower rates, mortgage holders will feel some relief and at least partially restored purchasing power upon renewal. We expect consumption will remain soft (relative to still-strong population growth) over the second half of the year before picking up in 2025 as the BoC continues to ease monetary policy.”
The full report can be found here.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list. He was also named by RETHINK to its global list of Top Retail Experts 2024.
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