Canadian consumer spending has decelerated to its most sluggish rate in more than a year, according to new data from Statistics Canada that reveals growing economic caution among households.
Retail Performance Shows Clear Slowdown
The latest figures released on Friday show retail sales increased by a mere 0.2 percent between July and September, marking a noticeable decline from the 0.3 percent growth recorded in the previous quarter. This represents the weakest quarterly performance in over a year, signaling heightened consumer restraint amid ongoing economic uncertainties.
September proved particularly challenging for retailers, with sales dropping 0.7 percent, matching economist expectations surveyed by Bloomberg. The preliminary estimate for October suggests no improvement, projecting essentially flat sales for the month.
Multiple Factors Driving Consumer Caution
Economists point to several converging factors behind the spending slowdown. The persistent trade conflict with the United States continues to create uncertainty, while federal immigration restrictions have substantially reduced population growth that previously fueled consumer demand.
When measured in volume terms, the picture appears even more concerning. Retail sales declined 0.3 percent during the quarter and fell 0.8 percent in September alone. Across nine retail subsectors, six experienced declines during September.
Automotive Sector Reflects Trade War Impacts
The automotive industry demonstrated particular volatility, with motor vehicle sales decreasing 2.9 percent in September. This marked the first decline in three months, primarily driven by reduced activity at new car dealerships.
Despite the recent downturn, auto purchases remain 7.4 percent higher in the first nine months of 2025 compared to the same period last year. This suggests some consumers accelerated vehicle purchases to avoid potential price increases resulting from U.S. tariffs.
Charles St-Arnaud, chief economist at Alberta Central, noted that excluding automotive sales, retail figures actually surpassed expectations with a 0.2 percent increase rather than the anticipated 0.5 percent decline. This indicates underlying consumer resilience despite broader economic headwinds.
Broader Economic Implications
The retail slowdown suggests consumer spending contributed minimally to economic growth in the third quarter. St-Arnaud estimates gross domestic product likely expanded at a modest 0.4 percent annualized rate, with official figures scheduled for release on November 28.
The Bank of Canada has indicated it plans to maintain its current policy stance after reducing its benchmark overnight rate to 2.25 percent. Central bank officials have stated rates are at approximately the appropriate level given current economic projections.
Core retail sales, which exclude gasoline stations and automobile dealers, remained essentially unchanged in September. The most significant declines occurred at building material and garden equipment retailers, which fell 2 percent for their third consecutive monthly decrease. General merchandise stores also reported lower sales.
Food and beverage retailers provided a rare bright spot, increasing 0.8 percent with particular strength at beer, wine, and liquor establishments, followed by supermarkets and grocery stores.
As the crucial holiday shopping season approaches, economists will closely monitor whether the labor market can maintain sufficient resilience to support consumer confidence and spending in the coming months.
