Canadian Consumer Spending Remains Resilient Thanks to Rate Cuts
Despite a cooling labour market and a soft housing sector, Canadian consumers are continuing to spend — and lower interest rates are a key reason why, according to a new report from TD Economics.
The report highlights that since mid-2024, the Bank of Canada’s 125 basis point rate cuts have encouraged consumers to spend more and save less. “Lower interest rates have tilted the math towards spending in households’ spend vs. save decisions,” said Andrew Hencic, TD’s senior economist. These lower borrowing costs have helped cushion the economy from broader weakness.
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Spending Grows Even as Jobs, Housing Cool
Household spending grew at a strong 4.8% annualized pace in late 2024, with a 4.5% rebound in Q2 2025, following a brief pause due to U.S. tariff concerns. Interestingly, this spending increase has not been driven by housing, but by a wide range of goods and services.
According to Hencic, “Canadians have splashed out across just about every category of consumption,” despite a weaker job market and lower confidence.
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Savings Rate Falls as Borrowing Costs Ease
With lower interest rates, households are spending more of their income. The savings rate dropped by 2.2 percentage points since Q3 2024. More money is available after debt payments, especially for households carrying loans, which has fueled increased spending.
Domestic Travel Up, U.S. Trips Down
Travel trends also reflect the shift in consumer behaviour. In July 2025, Canadians made just 2.3 million return trips from the U.S., the lowest number since the 1970s (excluding the pandemic). However, domestic travel spending remains strong, helping local businesses.
Payments Data Confirms Spending Strength
A separate report from Payments Canada shows Canadians made 22.5 billion transactions worth $12.2 trillion in 2024 — a 3% increase in both volume and value over 2023, indicating broad-based spending resilience.
But Growth May Slow
TD cautions that this trend may not last. Rising unemployment, modest wage growth, and upcoming mortgage renewals at higher rates could slow spending. Consumer spending is expected to ease to around 1.3–1.4% growth by late 2025 and early 2026.
“Downbeat sentiment and slower income growth will likely drag on household spending,” Hencic concluded.
Summary:
Low interest rates have kept Canadian consumer spending strong, even as the economy shows signs of weakness. But TD warns that this support may fade as economic pressures build in 2026.
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