A new report from RBC Economics suggests Canadians “ramped up” their holiday spending in December once the federal tax holiday came into effect, making up for a slow start to the busy shopping season.
In the report released Thursday, RBC Economist Carrie Freestone said that December “marked a sharp reversal” after a slow start to the holiday shopping season in November.
“While Black Friday shopping was softer this year than last, total spending over the holidays was slightly above year-ago levels,” she said.
“Canada’s federal tax holiday may have nudged spending to later in the season.”
In November, the federal government announced it would be implementing a GST/HST tax holiday from Dec. 14 until Feb. 15 of this year to alleviate affordability pressures facing Canadians.
The tax holiday was applied to a number of goods many Canadians were set to purchase over the holiday period including children’s toys, beer and wine, restaurant meals, and Christmas trees.
Freestone said in the report that there was “a noticeable pullback” in spending immediately after the tax holiday was announced, and a material “pickup” of in-person spending as soon as the tax holiday began.
“However, the two weeks leading up to Christmas are typically the busiest spending days of the season,” she noted.
“But even after the tax holiday came into effect, spending on books, music, journals, photography, hobbies, toys, and games was well below year-ago levels. Instead, Canadians spent more on gifts of entertainment, art, clothing, and jewellery this year.”
When it comes to overall cardholder spending during the holiday season, Freestone said in the report that while activity in November was “very weak,” the December spending rebound “more than made up” for it, returning spending to trend.
Freestone said the increased spending in December came amid signs of a slowdown in population growth, with data so far pointing to a second consecutive per-capita spending increase in the fourth quarter (Q4).
“Overall, economic growth has still been soft – we are tracking a 1.5 per cent increase in Q4 gross domestic product, up slightly from (the third quarter’s) one per cent increase,” she said.
“Still, protectionist U.S. trade policy from the incoming (Donald) Trump administration remains a risk. However, we continue to expect lower interest rates will help support stronger real per-capita consumer spending in the year ahead.”