TD data on Canadian bank card usage reflects weakening consumer confidence
The Canadian economy has shown resilience in recent months but is not out of the woods yet, raising the prospect of further rate cuts from the Bank of Canada.
Although GDP data for the first quarter of 2024 came in below analysts’ expectations, there are some signs that the second quarter may show improvement, but weaker consumer and business sentiment could further slow growth.
A new report from TD economist Maria Solovieva, CFA, reveals that consumer spending on credit and debit cards continued to be relatively weak in May and June. Although there was a jump in the year-over-year transactions stats for June, this said more about the year-ago weakness than any real growth.
Monthly data showed volatility in spending while the three month trend was “decidedly negative.” The weakness in spending was recently seen in the official figures for Canadian retail sales which fell 0.8% in May with eight of the nine subsectors impacted.
Travel and entertainment sectors did show improvement in the TD report but did not offset a decline in spending on goods, at least on credit and debit cards.
Meanwhile, the most recent barometer of consumer sentiment from Bloomberg-Nanos reveals a weakening picture.
The Canadian Confidence Index for July 19 showed a decline in overall sentiment, along with metrics for personal finances, the Canadian economy, job security, and real estate. However, economic mood did tick higher among respondents in the Prairies and Quebec, and those aged 18-29 and 40-49.
Scotiabank’s Rebekah Young wrote a commentary warning that Canada risks talking itself into decline.
She notes that, while Canadians are feeling gloomy about many aspects of life currently, including their finances, things are perhaps skewed by comparing current conditions to “past (unsustainable) peaks or pegging performance to peers (or parents).”
Young says that it’s not clear that the pessimism is warranted especially as “indicators of financial health from net worth to real disposable income suggest most Canadians across the income spectrum are better off compared to their pre-pandemic positions.”
The economist says that there needs to be constructive conversation about Canada’s future to avoid further negative sentiment harming growth.
