RBC is out with its latest consumer spending tracker.
Canada’s largest bank uses its card-spending data to track spending patterns and in October noticed a shift away from vacations and eating-out and towards gasoline and clothing purchases.
Spending on physical merchandise continues to show signs of slowing. Our tracking of retail sales excluding motor vehicles (and controlling for price changes) is down an annualized ~1.0% in Q3. October sales were slightly stronger as Canadians bought more gas and clothes. But most other spending categories were either weakly positive or outright declined.
The report said discretionary service spending fell by the most in six months, with restaurants and hotels slowing. Home-related spending also remains ‘very weak’ with housing cooling.
Heading into Q4, we expect consumer activity to continue to soften. On a per capita basis, demand has declined since the second half of 2022. As cumulative mortgage servicing costs continue to mount and renewals rise, we expect Canadians will tighten their belts this holiday season.
I continue to believe that Canada faces a hard landing in the spring if rates remain at these levels.