People shop at the Eaton Centre in Toronto on Nov. 22, 2022.CARLOS OSORIO/Reuters
The resilience of Canadian consumers is one of the key economic themes of the year. Their ability to keep spending, despite substantially higher interest rates, forced the Bank of Canada to resume hiking rates in June.
Consumer spending is a double-edged sword as Bank of Canada tries to control inflation
But what if consumer spending isn’t quite as lofty as it seems? The Globe and Mail did some back-of-the-envelope math on Canadian retail sales data, adjusting for inflation and population growth. After all, the country is growing at historically strong rates – by more than 1.2 million people over the past year alone.
Based on the age 15-plus population, the average person spent $1,775 on retail goods in May, according to The Globe’s calculations. That’s about the same as two summers ago, revealing a flat trend for consumption.
In a recent report, economists at Toronto-Dominion Bank pointed to a pop in consumer spending at the start of the year that, they contend, was misleading. “Those figures showed that more cautious spending behaviour was completely masked by the sheer number of people spending,” they wrote.
Of course, retail sales alone miss a big portion of consumer spending on services, such as travel and restaurants.
But the overall picture appears to be weakening. Figures compiled by the Canadian Chamber of Commerce show inflation-adjusted spending per person was down 1.4 per cent in June from a year earlier. The declines were even steeper in Toronto (-2.4 per cent), Montreal (-3.5 per cent) and Ottawa (-6.2 per cent).
In a separate report, TD economists said that total consumption is still a crucial indicator, particularly as it relates to stubborn inflation.
“The population surge is a textbook demand shock,” they wrote. “Although economists have been pointing to a slowing in per capita spending patterns by households, the aggregate impact is what matters in creating a disconnect with supply, and eventually feeding through to price pressures.”
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