Soft Patch in Spending Might Be Here to Stay
Spending Tracker – August 2023

Maria Solovieva, CFA, Economist | 416-380-1195

Date Published: August 30, 2023


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  • TD’s latest debit and credit card spending data suggests that consumers are tightening their purse strings. Although seasonally adjusted nominal card spending was up 8.2% month-on-month in July, it follows a steep decline in June (-7.3% m/m) and a near-zero pace of spending in the spring (Chart 1). Given the volatility in recent months, we smooth the series over a period of three-months, revealing a flat trend with the three-month average pace of growth at only 0.1% in July.
  • Chart 1 shows month-over-month and three-month average percent change in TD's aggregated debit and credit card spending data from August 2022 to July 2023. The series have also been adjusted for seasonal fluctuations. The bar chart (month-over-month) shows a 7.3% decline in June followed by 8.2% increase in July. The line chart (the average growth over three months) shows a near-zero growth in spending from March 2023, with a decline of 2.5% in June and growth of 0.1% in July.
  • July also saw the Federal government’s grocery rebates paid out early in the month, which likely boosted the spending rebound. Thanks to this fiscal largess, spending may remain resilient for another month yet, but we expect that over the medium term, the trend will shift into a lower trajectory. Employment growth has slowed recently, which should contribute to softer spending trends. In the past, employment has been a decent guide for spending behavior, especially during the pandemic-related closures and re-openings (Chart 2). 
  • The see-saw pattern in spending in June and July was seen in both goods and services (Chart 3). However, a softer dynamic in late spring resulted in a relatively weaker three-month average growth in goods spending. Tepid growth in purchases at grocery stores, general merchandize shopping centers and gas stations, which collectively accounted for more than two thirds of goods spending growth, was behind the weak print. 
  • Chart 2 shows the three-month average percent change in TD Spend on the right axis alongside StatsCanada's three-month change in employment (in thousands) on the left axis from January 2022 to July 2023. The growth pattern of TD spend data follows changes in employment. This suggests that the recent deceleration in employment gains may have driven the slow-down in card spending. Chart 3 shows month-over-month percent change in TD card spending on goods and services between August 2022 and July 2023. The series were relatively stable in 2022, followed by volatile February and March, when goods and services growth moved in opposite directions (services spending contracting in January, increasing in February, and contracting in March, while goods spending doing the exact opposite). In April and May, both categories slowed to a near-zero trend, while summer brought volatility to the series, with both goods and services declining in June and increasing in July.
  • A closer look at the data reveals that spending on discretionary items is falling out of favour. In goods, three-month-average growth in spending on home-related items (furniture, home electronics etc.) has remained in contractionary territory for the past five months (Chart 4). This weakness aligns with what we’ve seen in retail sales data, which we only have through June. An upturn in housing market activity is typically followed by home-related purchases on things furniture etc., but the turnaround in home sales earlier in the spring has yet to produce the same spending boost. These categories may have more downside potential as home sales are expected to remain under pressure for the rest of the year. 
  • In the services sector, recreation and entertainment spending remains the largest catalyst of activity. This category accounted for more than two thirds of the drop in services spending in June, and its rebound in July. No doubt consumers are still ready to open their wallets to see Taylor Swift and Barbenheimer, but this category’s trend growth might be cresting.  Ditto for transportation and travel – the other two darlings of the recent economic expansion (Chart 5). Higher price pressures might be the reason consumers are willing to hit a pause button on these activities.  
  • Chart 4 shows the three-month average percent change in StatsCanada's retail sales and TD card spending on housing-related items (i.e. purchases at furniture, home, electronics, and building materials stores) on the left axis, alongside Canadian Real Estate Association's series on residential home sales on the right axis, from March 2022 to July 2023 for TD Spend and home sales, and from March 2022 to June 2023 for retail sales. Generally, the series line up well, declining for the most of 2022 and early into 2023. However, in April, home sales rebounded sharply and continued growing into June, before slowing in July. Despite this rebound in home sales, housing-related retail sales and TD card spending remained contractionary during this time. Chart 5 shows the three-month average percent change in TD card spending on travel, transportation, recreation & entertainment from August 2022 to July 2023. There is a notable spike in these series in the February 2023, followed by strong growth March - April. In May, the series went negative for the first time since January 2022, and moved further into the contractionary territory in June, before rebounding in July.
  • The only significant categories where trend growth remains positive are financial services (which includes broker-dealer receipts that respond to changes in securities markets), and miscellaneous services (which includes dry cleaning and tailoring services buoyed by return-to-office). Although the rotation into services might be coming to its end, there is still upside potential for spending growth going forward. This is because spending on services is typically supported by higher-income households who still hold an estimated $140 billion in excess deposits.
  • All said, spending could by buoyed by fiscal support and excess savings in the near term. Given these crosscurrents, we put a wide range of estimate on Q3 real consumer spending growth of 2.0-3.0% (annualized). Further slowing is in the cards (pun intended) thanks to higher debt servicing costs that continue to feed through the economy. Looking through the current quarter, a soft patch in spending might be here to stay.