2023-07-20 20:07:40
(OTTAWA) Although consumer spending remained strong in the second quarter, it changed course when the Bank of Canada ended its pause on interest rate hikes, the Canadian Chamber of Commerce (CCC) estimated Thursday.
Consumer spending is likely to slow appreciably in the second half of the year as people cut back on discretionary purchases, the House’s Chief Economist Stephen Tapp has predicted.
“We expect consumers to come under increasing pressure, especially those who borrow,” he said. They have to pay down their debt, they’re going to have to cut something, and they’re going to cut their discretionary spending. »
CCC tracks local spending using data from payments company Moneris. Its trade data lab found that consumer spending saw a resurgence in April and May, following the lull following the holiday season.
“It’s true that the second quarter was really good. Just like the first quarter was really good,” Mr. Tapp pointed out.
However, they began to fall in June, following the Bank of Canada raised its key rate to 4.75%, observed the CCC.
The central bank raised its key rate once more last week, to 5%.
Balance
The central bank would like to see slower growth to help it in its fight once morest inflation, which aims to bring it back to its target of 2.0%, Tapp said. This notably requires a slowdown in the growth of expenditure.
“That’s the kind of balance they’re trying to achieve. They want to slow the economy down so that supply can catch up with demand, but they don’t want to slow it down to the point where people lose their jobs and we end up with a broader recession,” he noted.
Mr. Tapp pointed out that population growth had supported strong spending. If the expenditures monitored by the Chamber are up compared to last year, they show a decrease since mid-March when they are adjusted to take inflation and population growth into account.
This helps explain why consumer spending has remained strong even as Canadians cut spending to cope with rising costs, Tapp continued.
“Overall, the economy continues to evolve at a reasonable pace. But the average person, the average consumer, may not feel like it’s a good time right now, even if it’s not necessarily measured as a recession,” he observed.
Consumer confidence declined in June following several months of gradual increases, the Conference Board of Canada said, with a negative employment outlook.
Services more popular than goods
In the second quarter, Canadians prioritized spending on discretionary services over goods, according to research by RBC Economics.
Spending per capita has been weaker than total spending estimates suggest due to strong population growth, Royal Bank economist Carrie Freestone wrote in a July 13 report.
But consumer spending remained more resilient in the second quarter than many feared, she continued.
I think the fact that we’re starting to see weakness in discretionary assets is probably a warning sign that rate hikes are starting to have an impact.
Carrie Freestone, Economist
“So I think that will eventually trickle down to the service sector. We just haven’t seen it yet. »
Consumers are still working on some pent-up demand from the pandemic, Ms.me Freestone, with travel and restaurants still being high on the agenda for many. Restaurant spending has been higher, even when adjusted for inflation, despite higher prices on menus, she pointed out.
“Canadians are willing to spend a little more money on restaurants or trips, those experiences they weren’t able to have during the pandemic lockdown,” noted Ms.me Freestone.
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