Canadians made 22.5 billion transactions worth $12.2 trillion last year, Payments Canada says. (Photo by Artur Widak/NurPhoto via Getty Images) · NurPhoto via Getty Images
Canadian consumers are spending more freely despite a weakening labour market and a sluggish housing sector, and lower interest rates are the reason why, according to a new TD Economics report.
“Lower interest rates have tilted the math towards spending in households’ spend vs. save decisions, helping to cushion the economy from a slowing labour market and subdued housing market,” said Andrew Hencic, director and senior economist at TD Bank, in a note published Wednesday.
“Looking ahead, the lower rates mean the savings rate should have a little more room to fall — keeping consumer spending out of the red as the unemployment rate rises,” he added.
According to the report, household spending grew at an annualized pace of 4.8 per cent in the second half of 2024, boosted by the Bank of Canada’s 125 basis points in rate cuts that began mid-year. Momentum briefly faltered early this year as U.S. tariff threats shook consumer confidence, but the pullback was short-lived, with spending rebounding 4.5 per cent in the second quarter of 2025.
The savings rate declined by 2.2 percentage points since the third quarter of 2024, in line with lower interest rates.
“Lower borrowing costs have meant more post-debt income available for indebted households, and Canadians have responded by spending it,” Hencic said.
What’s unique is that spending hasn’t been concentrated in housing; rather, into a variety of goods and services.
“The Canadian consumer has splashed out across just about every category of consumption in a way that is far beyond what would be expected in the context of a soft labour market and downbeat sentiment,” Hencic said.
Travel patterns also highlight the shift. Canadians took only 2.3 million return trips from the U.S. in July, the lowest number since at least the early 1970s outside of the pandemic. Meanwhile, spending on domestic travel is likely to continue, benefiting Canadian businesses.
The broader payments landscape reflects similar spending resilience. A separate report from Payments Canada shows that Canadians conducted 22.5 billion transactions valued at $12.2 trillion in 2024, representing a three per cent increase in both volume and value compared to the previous year.
Still, TD warns that there’s a limit to how much rate cuts can help boost consumer spending. Unemployment rates are expected to rise, and the housing market remains oversupplied, with boom times unlikely to return. Furthermore, mortgage rate resets are on the way, which may lead to reduced spending, while loans in arrears are increasing.
Household spending growth is forecast to slow to between 1.3 and 1.4 per cent in late 2025 and early 2026, with wage gains expected to be modest, reflecting a weaker labour market.
“As such, we’re looking for consumer spending growth to moderate in the coming quarters as downbeat economic sentiment and slower income growth act as drags,” Hencic said.