Consumer spending ticked higher in November compared with recent months, even after adjusting for inflation, but consumption patterns still point to consumers losing confidence as they feel the pinch of high debt-servicing costs and grocery bills. A new report by RBC showed that price-sensitive Canadians took advantage of Black Friday discounts ahead of the holidays, with spending increasing by 7% (from the evening of Black Friday through to Cyber Monday) compared with the same time in 2022, according to the bank’s cardholder data.
Despite the uptick in spending, the data shows that consumer confidence remains weak, with fewer purchases of luxury goods like jewelry and electronics compared with previous Black Friday weekends. Meanwhile, Canadians spent more on necessities like clothes and gasoline throughout the month.
RBC economist Carrie Freestone, author of the report, said she expects overall consumer spending to decline again in December, with RBC forecasting that Canada is already experiencing a mild recession in the last quarter of the year. “Most of our data suggests that Canadians were feeling the pinch prior to November,” she said in an interview. “The bulk of holiday spending is concentrated in that particular month because of Black Friday deals. With that in mind … we are very much expecting that the data will tell us we’re in a recession right now,” she added.
Black Friday is known for its attractive deals. Prior to the pandemic, purchases of electronics made up 13% of Black Friday weekend purchases, according to the report. Now, it’s only about 8.5%.
Meanwhile, travel spending posted an increase in November compared with the actual number of people travelling, even after accounting for the fact that people tend to travel more during the holidays. Freestone attributes this rise to travellers snatching Black Friday deals for trips in the new year when the economy is expected to rebound, with economists forecasting the Bank of Canada will begin cutting rates around the summertime, she said.
The report also noted that restaurant spending was slightly higher in November, but overall spending on discretionary services has been slowing over the past few months. Real gross domestic product fell by 0.3% in the third quarter of 2023. If GDP continues to decline in the fourth quarter ending in December, it means the economy is in a technical recession.
Aside from weakening consumer confidence, rising unemployment and softer manufacturing activity all have been pointing to a recession, said Freestone. “Consumption is starting to weaken pretty drastically — people are pulling away from discretionary spending, and instead focusing on essentials … November is a bit of a blip in the data,” she said.
Source: The Star