Are Canadians splurging or saving this summer?

00:00:00:02 – 00:00:24:03
Claire
Just like the weather. Canadian consumer spending heated up fast this summer. What’s behind the strength? Was it all because of the FIFA World Cup? And how did surging gasoline prices change things? Hi, and welcome back to The 10 – Minute Take I am your host ClaIre Fan. In this episode, I’m joined by two of my RBC Economics colleagues to discuss consumer spending signals in Canada over the summer.

00:00:24:09 – 00:00:26:24
Claire
Abbey and Rachel, welcome to the show.

00:00:26:26 – 00:00:27:25
Abbey & Rachel
Thanks for having us.

00:00:27:26 – 00:00:38:06
Claire
Okay, jumping in immediately with a big picture question. Rachel, I’m going to start with you. Tell us, how did consumer spending change broadly in the second quarter of this year?

00:00:38:07 – 00:00:44:10
Rachel
Well, I feel like we’ve been giving this idea of consumer strength and resilience a lot of airtime recently.

00:00:44:18 – 00:01:09:12
Rachel
Been talking about this a lot because it’s somewhat impressive given the economic backdrop. We have stress from tariffs. We have relatively low consumer confidence. We have a labor market that has been weak, though is starting to improve now. And yet through all of that, consumers are still spending still pretty resilient. I’ll caveat that by saying some of that spending is probably involuntary.

00:01:09:13 – 00:01:33:25
Rachel
We did see a massive gas price surge due to the Middle East conflict, so that’s definitely putting some pressure on consumers. But even gas aside, our core retail sales measure, which looks at merchandise spending, less gas, that’s pretty strong, that posted a 2.4% quarter over quarter increase, which is the largest quarterly increase we’ve seen in four years, by the way.

00:01:33:27 – 00:02:03:19
Rachel
And that was relatively broad based. We saw quite the uptick in grocery spending. That was the largest contributor to essential spending excluding gas. And we also saw quite the rebound and discretionary goods spending as well. Things like household and construction items, appliances, clothing and apparel, those all increased the household and construction. One is particularly interesting because it kind of jives with what we’re seeing in the housing market, which is early signs of renewed buyer interest. So all in all, I would say Q2 was a pretty strong quarter.

00:02:03:20 – 00:02:25:20
Claire
That’s definitely great news for the Canadian economy, especially given some of the hit winds that we’re still facing. So how does this fit into our broader GDP forecast, Abbey I’m i Right to assume that, you know, consumer spending is going to be a pretty large contributor to overall economic growth in the second quarter?

00:02:25:21 – 00:02:48:08
Abbey
Yes, that’s our read. So the key reason for that is because households are still spending on essentials and discretionary goods despite elevated fuel costs. But there is an important caveat though. So there is a bit of a gap between our own estimate of core retail sales and the national data in Q1. So some of the rebound we’re seeing right now is actually within our own cardholder base.

00:02:48:09 – 00:03:06:01
Abbey
But even with that caveat, we think the underlying pictures still encouraging. And some of the early July activities sort of suggest that, you know, activity or resilience carried into the start of Q3. But we’ll keep watching August and September spending trends as the data comes in.

00:03:06:02 – 00:03:12:02
Claire
Okay. Let’s dig a little bit deeper here beneath some of the headline numbers that we just talked about.

00:03:12:04 – 00:03:20:18
Claire
And I think you both know where I’m heading with this. So how much exactly did the FIFA World Cup add to consumption growth in the second quarter?

00:03:20:19 – 00:03:33:02
Rachel
A lot of hype around FIFA, and I can tell you, as someone who spends a lot of time in downtown Toronto, the streets were packed. That’s something that we did see partially reflected, I’ll say, in our cardholder data.

00:03:33:04 – 00:04:00:07
Rachel
There was pretty clear evidence of increased spending at places like bars and restaurants and on entertainment and art around that tournament period. What I thought was really interesting was younger cardholders age 15 to 24 showed a little bit more exclusive support for Team Canada. They’re a little bit more selective with their spending on food and entertainment going out more often when the national team was playing.

00:04:00:08 – 00:04:04:02
Claire
Okay, so you’re telling me the younger Canadians are more patriotic,

00:04:04:04 – 00:04:22:07
Rachel
or do they have a tighter budget and don’t have the ability? Probably the latter (Claire). Shift their spending from month to month. They have to be a little bit more selective with their in month spending, which could look like, you know, going out with friends on a Wednesday to watch Team Canada, but then staying home when Germany’s playing on Friday and making ramen.

00:04:22:07 – 00:04:29:20
Claire
So was sort of the spending surge exclusive to Toronto and Vancouver, which were the host city of FIFA then

00:04:29:26 – 00:04:49:25
Abbey
we did see spending gains extended actually beyond the host cities, and FIFA wasn’t the only game shaping in the second quarter. Calgary, for example, recorded the strongest increase in total spending among Canada’s four largest cities and entertainment dining spending there rose about 6.9% from Q1.

00:04:49:26 – 00:05:20:21
Abbey
So pretty meaningful with a lot of entertainment activity concentrated in the month of June ahead of the Stampede and for Toronto and Vancouver merchants, they likely benefited from FIFA as well. Regionally, when we look at rivals through Toronto and Vancouver airports, activities were up about 10% from a year ago levels. But when we zoom out a little bit, looking at the national picture, arrivals across Canada were up only about 0.6% from a year ago levels.

00:05:20:21 – 00:05:45:15
Abbey
And there are another piece of data. So from trade report. So in June we will look at travel services exports. It was little change as well. So our overall interpretation and or understanding of the data here is a major event sort of concentrate spending specific cities and periods rather than adding to the national tourism activity.

00:05:45:18 – 00:05:57:08
Claire
I see, so you’re saying basically foreign visitors would have visited Canada regardless, and they’re just substituting perhaps one city over another rather than adding two tourism activities overall due to FIFA.

00:05:57:10 – 00:05:58:07
Abbey
Exactly.

00:05:58:12 – 00:06:00:04
Rachel
And timing as well. Right?

00:06:00:06 – 00:06:00:14
Abbey
Yeah.

00:06:00:15 – 00:06:04:01
Rachel
Maybe would have visited in Maine instead. Delayed end of June?

00:06:04:02 – 00:06:05:00
Rachel
Yeah

00:06:05:06 – 00:06:19:18
Claire
Okay. So far we’ve talked pretty extensively about core retail sales and essentially all the goods and positives. But one of the not so positives in the second quarter was the fact that gas prices did surge by quite a bit.

00:06:19:19 – 00:06:20:02
Rachel
Yeah.

00:06:20:03 – 00:06:25:18
Claire
Rachel are we seeing any signs of that. Let’s say households being squeezed by elevated gas prices

00:06:25:19 – 00:06:48:18
Rachel
for some households. Absolutely. But actually on aggregate. We’re not seeing that. If you look at insolvencies, they are not increasing, at least not on a per capita basis. And they’re still lower than they were compared to pre-pandemic. But beneath that, if you look at, you know, groups of households, there’s definitely some heterogeneity there.

00:06:48:20 – 00:07:15:22
Rachel
Households at the top of the income distribution. So the top 40% of households in terms of earnings. Those are households that tend to sit on quite a bit of savings over the last few years. You know, we saw pretty impressive equity market performance. Home prices, although they are falling, are still up some 30% relative to 2019. So that’s created quite the savings cushion for middle and lower income households who tend to not have savings.

00:07:15:25 – 00:07:35:28
Rachel
They have tacked on a little bit more debt. So absolutely feeling the pinch there. That being said, their assets have actually grown faster than their debt levels, which does put them in a relatively better net debt position. And so that’s helping to alleviate some of that financial stress, even in the absence of savings for those groups.

00:07:36:00 – 00:07:36:28
Claire
Okay. That makes sense.

00:07:37:00 – 00:07:49:09
Claire
I guess it’s almost time for us to wrap up. But before we do, one last question to you, Abbey. Give us a sense of where we’re expecting consumer spending to be heading over the second half of 2026.

00:07:49:12 – 00:07:58:21
Abbey
In short, we expect the pace to cool but we do not expect consumer demand to fall away or collapse. And the key support here is purchasing power.

00:07:58:21 – 00:08:25:02
Abbey
So what is purchasing power? A very easy way to understand it is how much stuff you can buy with your money. So if let’s say inflation outside of gasoline continue to rise more slowly than wages, it means real incomes should keep improving. And when we talk about incomes we think about labour markets as well. And we have seen, you know, labour market conditions getting better moving into the second half of 2026.

00:08:25:03 – 00:08:51:12
Abbey
We sort of expect that progress to continue with unemployment rate continue to drift lower according to our own base case. The other thing is, wage growth is currently standing at suit at 2.8% year over year, and it has ticked lower. But compared to historical levels, still pretty elevated. But as economists, we talk about the balance of risk for sure.

00:08:51:13 – 00:09:23:21
Abbey
So there are clear risks here. For example, energy prices could stay elevated. And for lower income households, they have sort of much less room to absorb another shock. But again, overall, the Q3 sort of spending signal is more consistent with resilience rather than a retrenchment. So we think the broader second half story is likely to be underlying. Demand remains fairly resilient, even as you know, the mix of spending normalizes after FIFA and other summer events.

00:09:23:26 – 00:09:44:00
Claire
And that’s a wrap for another episode of The 10-Minute Take. Rachel. Abbey, thanks for coming on the show, and thank you to our listeners for following the conversation. We’ll be back with a new episode in two weeks. Until then. Feel free to catch up on our other episodes by going to our website, going on Apple Podcasts or Spotify.