Consumer spending slowed in March: TD report

Consumer spending likely ground to a halt at the end of the first quarter, according to new data from TD Economics.

In a research note, the bank’s economists reported that the bank’s latest high-frequency data on debit and credit card activity point to a likely slowdown in consumer spending in March, as nominal spending by its customers rose 0.1% month over month but was down 0.1% on an inflation-adjusted basis.

“This is a sharp cooling from an unusually strong pace of nominal and real spending growth during an uncommonly warm winter season,” the report said.

While spending on goods rose by 1.4% in the month, services spending was down 1.6%, it said.

“Travel was the main driver of weaker services spending in March,” TD said, noting that spending on travel was down 0.8% in the month following strong spending in the two previous months.

“Spending on other Covid-affected services was mixed, with transportation growing at a steady rate, and recreation and entertainment losing momentum in March,” it said.

Looking ahead, the report said the pattern of spending on activities that were distorted by the pandemic “is starting to normalize,” which should lead to less volatility in services spending in the future.

At the same time, spending on goods rebounded in March driven by food and beverage, and pharmacies and personal care, while house-related spending declined 2.1%, TD said.

With spending cooling at the end of the first quarter, signalling a likely soft start to the second quarter, TD forecast that personal consumption will rise modestly, up 1.0% quarter over quarter.

“Spending on services is likely to continue to outpace spending on goods, regaining its place in consumers’ hearts and budgets as pandemic distortions move further into the past,” it said. “That said, we expect further slowing in consumer spending growth in the second quarter as higher debt-servicing costs continue to feed through to consumers.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.