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Weaker dollar, cheaper gas boost Canadian spending in Q1

A fuel pump is seen in a car at a gas station in Toronto April 22, 2014. Gas prices have been climbing to the $1.40 Canadian dollars ($1.25) per litre, which would be the highest fuel price in over three years in the Toronto area. REUTERS/Mark Blinch

A weaker dollar and cheaper gas is help keeping Canadians at home. The result – less cross border trips and more shopping and spending at restaurants closer to home.

Spending across the country rose by 5.78 per cent in the first quarter of 2015, versus the same time last year, according to the MonerisMetrics quarterly report by debit and credit payment processor Moneris.

At the top of that list, was spending at restaurants, which saw a 10.9 per cent growth in the fast food category and 7.84 per cent leap in the bars and clubs realm.

“I think some of that is extra money in our pockets from lower gasoline prices so people are just going out a bit more, eating out,” says Sal Guatieri, senior economist at BMO.

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Retail also saw a spike according to Moneris’ data. The clear winners were the shoe stores and women’s accessories, which saw increases of 9.32 per cent and 7.27 per cent. Men’s clothing on the other hand saw a modest 3.45 per cent increase while family clothing saw a 4.25 per cent climb.

Spending on Little Kirby or Muffy also saw a boost with pet stores posting a 7.04 per cent growths.

Guatieri points to the weak dollar keeping cross-border jaunts to a minimum and Canadians spending more money at home as a potential culprit for the spending sprees.

“We’re seeing a 28 per cent drop in same-day visits to the U.S. in the past two years – people are just spending more of their money here,” he says.

Despite a softening housing market, the sales of drapery, window covering and upholstery grew by 11.33 per cent. Sales of glass, paint and wallpaper followed suit, climbing 12.86 per cent.

Guatieri notes that while some of that spike is seasonal related, you can’t discount the fact that despite the softened housing market, Toronto and Vancouver are still seeing strength locally.

“They count for about one quarter of the population, so if home sales are still strong in those two regions that will tend to encourage spending on home furnishings,” he adds.

How Canadians spent was dominated by credit cards, rising 6.98 per cent and holding just over 60 per cent share of purchases made. Debit followed behind at 7.77 per cent.

Although Moneris’ report is optimistic, the spending splurge may be paring back.

According to the Conference Board of Canada, the Index of Consumer Confidence fell 13.6 points to 94.7 in April.

“Relative to last month, Canadians were more pessimistic about their current and future finances, their willingness to make a major purchase, and future job prospects in April,“ wrote Julie Ades, senior economist at conference board, in a release.

Guatieri expects the similar trends.

“We’re coming off a strong year, consumer spending after inflation was close to three per cent last year,” he says. “We won’t see that this year, we’re probably going to see consumer spending closer to two per cent largely because of the big downturn in the oil producing regions.”

But any boost in spending is apt to help the economy, adds Guatieri.

“Consumers account for just over half of GDP so if they’re spending upwards of two percent, then it at least provides a strong anchor to our economic growth this year,” he says. “It’ll cushion the blow from the oil price shock.”