Canadian companies are painting a stark picture of a consumer who’s pulling back on spending, as rising debt payments and inflation force households to change their behaviour.
From big-box retailers to toy marketers to coat manufacturers, recent corporate earnings results and executives’ comments underscore how quickly the economic temperature is changing after two years of robust growth.
Canadians have the highest household debt levels among G7 countries, and they feel the pinch of higher rates sooner than U.S. consumers because their mortgage terms tend to be shorter. More than a third of mortgage borrowers have seen their payments increase since February 2022, according to central bank data.
Consumer weakness spilled into full view in Canadian Tire Corp.’s third quarter as its customers curbed spending on non-essential items, pushing comparable sales down 1.6 per cent relative to the previous year. The company said the soft trends were particularly notable in Ontario and British Columbia, the two provinces with the most expensive housing markets.
Chief Executive Officer Greg Hicks calls it an environment of “relentless uncertainty,” despite economists’ belief that rate hikes are likely done.
“The future is increasingly murky, given the Bank of Canada’s pause was couched in a hawkish tone around risks of further inflation and the potential of more policy rate moves down the road,” Hicks told analysts.
Spin Master Corp., a Toronto-based toymaker that sells brands such as Paw Patrol and Bakugan, reported a 29 per cent decline in gross sales of toy products in Canada in the first nine months of the year, compared with a 20 per cent drop in the U.S.
CEO Max Rangel said toy orders have slowed, “particularly from mid-October. We expect this trend to persist for the remainder of 2023.”
Canada Goose Holdings Inc., the maker of parkas and other high-end clothing, also reported small declines in Canadian and U.S. sales in its most recent quarter. It’s the worst performing stock in the S&P/TSX Composite Consumer Discretionary index over the past three months.
One challenge for policymakers in North America is that people are bracing for more inflation in the future, eroding confidence. U.S. consumers’ long-term inflation expectations increased to the highest since 2011, according to a new reading from the University of Michigan. In Canada, while inflation expectations have eased, they’re still well above the Bank of Canada’s own inflation forecast, which sees inflation returning to around two per cent in the latter part of 2025.
That also implies rates may stay elevated for longer — which would mean future financial pain for millions of Canadians with mortgages where the rates have yet to reset.
Transportation companies are among the first to feel the shift in consumer sentiment. Cargojet Inc., an air-cargo shipper that boomed during the pandemic with the rise in online shopping, saw revenue decline eight per cent from year-earlier levels in the third quarter.
CEO Ajay Virmani echoed Canadian Tire’s view of consumer patterns. “We are observing a division in household spending,” he said. “The volumes for discretionary items are softening but the volumes for essential household goods are holding up well.”
Investors in U.S. consumer companies are also heading into a critical period, with bellwether names like Walmart Inc., Target Corp., Home Depot Inc. and Macy’s Inc. all scheduled to report earnings this week.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
