Canadians kept opening their wallets through the second quarter, even as higher energy prices and weak wage growth squeezed household budgets. That's according to card spending data from RBC, one of the country's biggest banks, which showed retail sales excluding gasoline rose 2.4% in the period.
The figure offers a snapshot of consumer resilience in a tough environment. With inflation still running above the Bank of Canada's target and borrowing costs elevated, many analysts had expected spending to cool more sharply. Instead, the data suggests households found ways to keep spending, at least on everyday goods and services.
What's behind the spending resilience?
RBC's card data is a widely watched gauge of consumer activity because it captures real-time transactions across millions of accounts. The 2.4% rise in retail sales excluding gas points to strength in categories like groceries, dining, and discretionary purchases, though the bank didn't break down specific sectors.
The backdrop is a mixed one. Real wages—what workers earn after adjusting for inflation—have been lagging, meaning paychecks aren't stretching as far as they used to. At the same time, energy costs have climbed, hitting household budgets directly at the pump and indirectly through higher shipping and production costs.
Yet consumers appear to be absorbing those pressures. Some may be dipping into savings built up during the pandemic, while others might be turning to credit cards to bridge the gap. RBC's data doesn't distinguish between cash and credit purchases, so it's possible some of the spending is being financed rather than funded by income.
What it means for the broader economy
Consumer spending is the engine of the Canadian economy, accounting for a large share of GDP. So the fact that spending held up in Q2 is a positive sign for growth, at least in the short term. It could also give the Bank of Canada more room to keep interest rates higher for longer, as it tries to bring inflation down without tipping the economy into recession.
But the resilience may not last. If real wages continue to lag and energy prices stay elevated, households could eventually hit a wall. Economists often point out that spending can remain strong for a while even as financial stress builds, because consumers adjust slowly—cutting back on big-ticket items first, then trimming everyday purchases later.
For investors, the data is a reminder that consumer strength isn't uniform. Companies that sell essentials, like grocers and discount retailers, tend to fare better in this environment than those relying on discretionary spending. RBC's own analysts have recently predicted split results for major US retailers, with some benefiting from trade-down behavior and others struggling.
What investors should watch next
The key question is whether this spending pace can be sustained. Investors will be watching upcoming retail earnings and monthly GDP reports for confirmation. If spending continues to hold up, it could support corporate profits and the broader stock market. If it falters, it could signal that the consumer is finally cracking under pressure.
Energy costs are another wildcard. With oil prices volatile, any further spike could eat into disposable income and force households to cut back elsewhere. That's a risk for retailers and consumer-facing companies, but a potential tailwind for energy producers.
RBC's data is just one piece of the puzzle, but it's an important one because it's timely and granular. Official retail sales figures from Statistics Canada come with a lag, so card data offers a more current read on consumer behavior.
For everyday investors, the takeaway is that the Canadian consumer has been more resilient than many feared, but the pressure is still building. It's a good time to review how your portfolio is positioned—companies with pricing power and essential products may be better insulated than those dependent on discretionary spending.
As always, no single data point tells the whole story. But the RBC card data suggests that, for now, Canadians are still spending—even if they're doing so with a bit more caution.
