Cash-strapped consumers show signs of thawing out

Card transactions are pointing to a second consecutive tick higher in per-person real retail spending (excluding autos) in the first quarter of 2024 after eight declines in a row, says the Consumer Spending Tracker by RBC Economics. However, there were signs of softening in March. Spending on furniture, clothing, and other merchandise finished the first quarter on a soft note – as households pared back physical merchandise purchases, buying fewer physical goods in favour of experiences.

March RBC consumer spending data suggests Canadian household spending is still restricted (on a per-person basis) but there are early signs of people starting to increase spend. The adjustment of households to higher interest rates is still likely closer to its end than its beginning with slowing inflation numbers inching the Bank of Canada closer to interest rate cuts. Still, labour market headwinds appear to be growing with the unemployment rate rising in March.

The report forecasts that consumer spending is likely to remain soft in the first half of this year before ticking higher in the second half.