Consumption levels are showing signs of softening
Canadian spending habits are showing early signs of slowing down due to sustained debt pressures, according to a new study by RBC Economics.
“Spending remains firm, but early signs of softening are consistent with a drift higher in the unemployment rate,” RBC said in a new report. “As we progress into the second half of the year, real consumption is expected to retreat as household debt servicing ratios climb to record highs.”
While restaurant spending has increased in July, RBC said that this should not be taken as an indicator of fiscal robustness since this largely reflects higher costs, rather than additional restaurant visits.
Spending on discretionary services also decelerated in July.
“The early summer travel boom is losing momentum with both real and nominal spending slightly below March peak levels,” RBC said.
In Q1, Canadian households borrowed $16.5 billion, with $11.2 billion in mortgage debt. The household debt service ratio increased to 14.9%, StatCan reported.https://t.co/7vNCET5Z4G#mortgagenews #mortgageindustry #economy #mortgagedebt #householddebt
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 24, 2023
Canadians are forced to spend less now
A recent poll by TransUnion has found that most Canadians are deciding to significantly cut down on their discretionary spending (54%), digital services (21%), and subscriptions or memberships (26%) due to inflationary pressures and elevated interest rates.
“Macroeconomic pressures remain top-of-mind for many,” said Matt Fabian, director of financial services research and consulting at TransUnion Canada. “Concerns around inflation, rising interest rates, housing affordability, and the perceived threat of a potential recession are affecting how Canadians are managing their household finances.”
More than one third (34%) of respondents said that they are saving up for a possible recession, while 36% said that they believe that a recession is already in progress.
