Growth in Consumer Spending Recovers
Index of Consumer Spending
The Index of Consumer Spending averaged 99.4 points in January, a 7.0-point increase from December (the week of April 10, 2022 = 100).
- Growth in consumer spending fluctuated between the end of December and early January. The Index of Consumer Spending (ICS) rose to 103.7 points during the week of December 25 but fell 7.0 points during the week of January 8 to settle at 96.7 points. Data on the ICS are available from the week of April 10, 2022, to the week of January 8, 2023.
- The ICS climbed 11.0 points between the weeks of December 11 and December 25, pushing past the 100.0-point benchmark for the first time in 27 weeks. This recovery was mainly driven by holiday spending. The upward trend was short-lived, however, as growth in consumer spending decelerated in the first two weeks of January. Despite this decline, the index averaged higher this month compared with December. One reason is that households felt more optimistic about their current and future finances in January than they did in December.
- Given that our index represents growth in nominal consumer spending, high inflation certainly explains why Canadians are spending more year-over-year. Consumers have been coping with elevated prices and higher interest rates for several months. But, according to our Index of Consumer Confidence (ICC), there was a slight increase in sentiment toward making major purchases this month, which would also bolster the ICS. Inflation is improving—the national inflation rate fell to 6.3 per cent in December, and consumers believe that the Bank has inflation under control. With the Bank of Canada increasing the target for the overnight rate by 25 basis points this month, we expect economic activity to continue slowing throughout 2023.
- Employment levels rose by 69,000 jobs in December, and the unemployment rate fell to 5.0 per cent. Canada’s labour market remains tight and continues to be a bright spot for the economy. Consumer spending would have been weaker had it not been for the strength of the labour market. However, as interest rates continue to work their way through the economy and economic activity cools, we expect a slight uptick in the national unemployment rate in the coming months.
Alberta
The index averaged 102.4 points in January, an increase of 6.1 points from December.
Alberta’s index rose to 106.0 points at end of December, fuelled by holiday-induced spending. However, as the holiday period came to an end, growth in consumer spending slowed, causing the index to retreat by 5.8 points and settle at 100.2 points in the week of January 8. Ultimately, the index averaged higher in January than in December. Inflation eased to 6.0 per cent in December, which boosted Albertans’ optimism over current finances. Looking ahead, we expect economic activity to continue slowing down as interest rate hikes work their way through the economy.
Atlantic Provinces
The index averaged 112.2 points in January, a jump of 9.9 points from December.
After falling to 102.5 points in the week of December 11, the region’s index soared in the final two weeks of December to reach 117.7 points. Consumers headed back to the shops during the holidays. But in the first two weeks of January the index declined by 9.9 points, settling at 107.8 points in the week of January 8. Still, the index averaged higher this month compared with December. Inflationary pressures have eased—the region’s inflation rate averaged 6.8 per cent in December—and this led to an increase in optimism toward current and future finances. The overall improvement in consumer confidence is what influenced the change in consumer spending behaviour this month.
British Columbia
The index climbed to 97.9 points in January, averaging 5.1 points higher than in December.
After falling to an all-time low of 91.9 points in the week of December 18, British Columbia’s index soared to a record high of 102.4 points in the first week of January. British Columbia is the only province where growth in consumer spending accelerated in the week of January 1— it seems holiday spending has carried over into the new year. However, in the week of January 8, the index retreated 3.2 points to settle at 99.2 points. According to our ICC, British Columbian’s felt more optimistic about current finances (because inflationary pressures have eased), which is why the ICS averaged higher in January compared with December.
Ontario
The index averaged 93.6 points in January, increasing 6.9 points from December.
Ontario’s labour market performed well in December—the province added around 36,000 jobs, and the unemployment rate fell to 5.3 per cent. This gave Ontarians the confidence to go out and spend toward the end of December. Ontario’s index increased by 11.1 points in the final two weeks of December to reach 98.2 points. Despite this recovery, growth in consumer spending has yet to fully recover as the index remained below the 100.0-points benchmark. As the holidays came to an end, consumer buying behaviour started to shift back to the patterns witnessed in November. Ontario’s index retreated as 2023 commenced, falling 7.4 points to settle at 90.8 points during the week of January 8.
Quebec
The index rose to 102.5 points in January, averaging 9.9 points higher than in December.
Quebec’s index increased by 16.4 points in the final two weeks of December to reach 109.4 points. The index had remained below 100.0 points for 30 weeks but finally surpassed this benchmark during the week of December 18, thanks to holiday-induced spending. However, growth in consumer spending reversed course come January. The index plummeted 12.3 points, as spending patterns returned to normal in January, to settle at 97.1 points. Despite this sharp decline, the index still averaged higher compared with December.
Saskatchewan–Manitoba
The index averaged 113.1 points in January.
After falling to 107.5 points during the week of December 11, the region’s index rose 11.1 points to reach 118.6 points by the end of the month. This upward trend was short-lived, however. Growth in consumer spending plunged 10.2 points in the first two weeks of January—a common theme among the provinces. Still, the index averaged higher compared with December. Inflation has eased and, according to our ICC, households in this region felt more optimistic about their financial situations than they did in December. Positive sentiment toward making major purchases also edged higher in January. This increase in consumer confidence is the main reason why growth in consumer spending averaged higher in January.
Territories
The index soared in January, averaging 8.8 points higher than in December.
The region’s index surged to 107.5 points in the final week of December but then fluctuated in the first two weeks of January. The index retreated 3.4 points in the week of January 1 but then recovered 4.1 points in the week of January 8 to reach 108.2 points—an all-time high. Holiday spending patterns seem to have carried over into the new year throughout the territories. The region’s inflation rate averaged 6.0 per cent in December, which slightly relieved persistent inflationary pressures. However, this has come at the cost of higher interest rates. We expect that growth in consumer spending will decelerate over the next several months as monetary tightening continues to work its way through the economy.
Growth in consumer spending accelerated during the holidays, but immediately reversed course in the beginning of 2023.
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Canada’s Gross Domestic Product is largely made up of consumption. One way to gauge how the economy is performing is to look at how much Canadians are spending. Yet across the Canadian economic landscape, there is a lack of readily available consumer spending data. With that in mind, we created the Index of Consumer Spending for provinces and for Canada as a whole. This unique Index 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. This index is intended to inform senior policy makers how the country and the provinces are doing. Updates on this index will be released monthly.
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.