Economists link rising household spending to rate cuts and improved purchasing power
Canada's economy contracted on a per-person basis in the third quarter, even as consumer spending showed resilience, according to BNN Bloomberg.
Statistics Canada reported on Friday that real GDP per capita dropped by 0.4 percent, marking six consecutive quarters of decline.
Gross domestic product (GDP) expanded at an annualised rate of 1 percent in the same period, down from 2.2 percent in the previous quarter and below the Bank of Canada's October forecast of 1.5 percent.
James Orlando, director and senior economist at TD Economics, described Canadian consumers as the “lifeblood of the economy” in his Friday report.
“They have been carrying the weight over 2024,” he wrote. Orlando expects consumer spending to continue supporting GDP growth through the first half of 2025, citing lower interest rates and government stimulus as contributing factors.
Household spending increased by 0.9 percent in the third quarter, led by purchases of new trucks, vans, and SUVs, according to Statistics Canada.
Orlando observed that this rise in consumer spending per capita represents a positive shift after negative trends over much of the past two years.
Nathan Janzen, assistant chief economist at Royal Bank of Canada, reported a 3.5 percent increase in consumer spending for the quarter.
He noted that some sectors sensitive to interest rates, including residential investment and consumer spending, showed signs of recovery following the Bank of Canada's interest rate cuts in June.
However, Janzen highlighted that per capita GDP still declined for a sixth consecutive quarter and warned of weak growth momentum extending into early fourth-quarter estimates.
Janzen stated that the GDP figures should “help reinforce” the view that current interest rates are higher than necessary to sustain inflation at around 2 percent.
Tu Nguyen, economist at RSM Canada, attributed rising household spending to improved purchasing power and interest rate cuts.
“The 1.7 percent growth in employee compensation also boosted households’ purchasing power, setting up what will be a strong holiday shopping season in the fourth quarter, further supported by the federal GST/HST tax break,” Nguyen stated on Friday.
Alberta Central Chief Economist Charles St-Arnaud linked increased spending per capita to gains in household purchasing power.
He reported a 2.3 percent quarter-over-quarter rise in disposable income during the third quarter, with real disposable income per capita increasing by 1 percent, the largest quarterly growth since the pandemic.
Despite these gains, St-Arnaud noted, “real disposable income per person is 4.5 percent below its pre-pandemic trend, explaining why households feel poorer.”
Consumer spending, bolstered by improved purchasing power and government support, played a critical role in offsetting economic challenges in the third quarter, according to economists.
