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Mar 25, 2024

Consumers still adjusting to higher rates and cost of living

RBC cardholder data suggests softer consumption in the first quarter so far after consumers spent freely during the holiday season. RBS’s proxy for Canadian retail sales shows declines in nominal retail spending excluding motor vehicles. These declines have been partially offset by stronger services sector spending.

Spending on essentials is holding steady amid grocery prices still growing faster than most other goods and services. Spending on discretionary goods (like clothing and footwear) has been weaker in recent months – a sign that consumers are making tough choices.

Spending on home improvement-related goods was essentially unchanged as prospective renovators possibly held off in anticipation of a pivot on interest rates from the Bank of Canada later this year.

RBC consumer spending data largely supports the organization’s view that household adjustment to higher rates and a higher cost of living is not complete. The ratio of household debt payments to disposable income is at record highs as delinquency rates have risen. Weaker housing affordability has cut into household purchasing power in a big way. Softness in Canada’s job market adds to the pressure. Later this year, RBC expects stronger services sector consumption will drive the rebound in growth, but this is contingent on the BoC pivoting to cuts by mid-year.

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