The Blubber

Household spending per person in Canada is dropping at a rate typically seen only during recessions. After adjusting for inflation, spending fell by 1.3% in the second quarter compared to the previous year.

Since the 1960s, faster declines have only occurred four times—during the recessions of 1982, 1991, 2009, and 2020.

This downward trend in spending, which has persisted for two years, helps explain why Canadians are feeling negative about the economy, even though overall growth has been steady and inflation is easing. Spending levels have now reverted to where they were in 2017.

While the economy is expanding, individual shares of the growth are shrinking, due in part to Canada’s rapid population increase, which has added 2.3 million people over the last two years. The population surpassed 41 million earlier this year.

Additionally, there are signs that Canadians are holding off on spending to save more. In the second quarter, households saved 7.2% of their disposable income, the highest rate since 1996 outside of the pandemic.

These data points reflect increasing pressure from high borrowing costs and a weakening job market, which are key factors leading many to expect the Bank of Canada to lower interest rates for a third consecutive time next week.