Consumer spending data is signalling a slowdown as optimism is being weakened by ongoing trade tensions, according to one economist.
TD Economist Maria Solovieva said in a report Monday that recent credit and debit card spending data for January and February suggests that consumers are “adjusting their spending in response to trade tensions.”
She said consumers are lowering their spending and likely saving as a precautionary measure. The data comes as U.S. President Donald Trump says he will be imposing broad and reciprocal tariffs, as well as additional sector-specific tariffs on April 2.
On an annual basis, spending growth eased to 5.2 per cent during the month of February and 5.9 per cent in January, falling from 7.2 per cent in December, according to the report.
“We believe the primary driver of this slowdown is the ongoing trade war. Consumer confidence has taken a notable hit, with the Consumer Confidence Index plunging 12.1 points in February,” Solovieva said.
The report also highlighted preliminary results from the Bank of Canada’s consumer expectations survey, which indicated households are becoming more cautious, sharing concerns about job security and financial health.
“In response, we are lowering our forecast for real personal consumption expenditures to mid-two per cent annualized growth in Q1 2025, down from our earlier, more optimistic outlook,” the report reads.
In early 2025, Solovieva said spending in both the goods and services categories weakened, “with no meaningful signs of resilience in key categories.”
“Given the solid hand-off into 2025, we continue to expect an additional quarter of above-trend spending growth in Q1-25. But by Q2-25, spending is likely to stagnate or even contract — a trend that could extend into the second half of 2025,” the report said.
