ICS surges in the second quarter on the back of a long-awaited interest rate cut, and strong population and employment growth.
- The Index of Consumer Spending (ICS) averaged 118.0 points in the second quarter of 2024, 19.8 points higher quarter-to-quarter.
- On a month-to-month basis, the ICS started the quarter a high note, jumping 7.6 points to 112.4 in April. The momentum carried into May as the ICS rose to 121.5 points, before settling at 120.1 points in June. The June estimates, however, are preliminary and only consist of data up to the week starting June 16th.
The Bank of Canada had its first interest rate cut since March 2020 in June after holding rates in April and May. The Bank cut its key interest rate by 25 basis points as data suggests that the economy continues to be operating in excess supply.
- Canada’s strong population growth continues to be a driving force of the spending increase. Statistics Canada population estimates show Canada adding close to 250,000 new residents in the second quarter of 2024.
Key Insights
Spring 2024 showed a surprising employment increase. Much of the rise was concentrated in April when the level of employment in Canada increased by 90,000 jobs. May added another 27,000 jobs while June was essentially flat at -1,400 jobs. Even though wage growth has cooled considerably since last year, the rise in employment was enough to support growth in spending in the second quarter.
Bank of Canada rate cuts will invigorate consumer spending. The Bank’s first cut in years will encourage consumers to loosen their wallets, particularly for big-ticket items. This sentiment will increase as the Bank of Canada continues in its rate cuts. The Conference Board of Canada forecasts two more rate cuts in 2024 with further reductions in 2025.
High inflation for shelter looms over consumer spending. In April, May, and June year-over-year shelter prices had risen by more than 6.0 per cent. These higher housing costs are a key reason why inflation has yet to reach the Bank of Canada’s 2.0 per cent target, which sat at 2.7 per cent year-over-year in June. The largest contributor to rising shelter prices has been mortgage interest costs, which are up 22.3 per cent in June compared to a year ago. Persistently rising prices for shelter will continue to shadow over consumer spending as more households renew their mortgages at higher interest rates.
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Walter Bolduc
Economist
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