There was good news this week from the Bank of Canada, where Governor Tiff Macklem announced that there would be no new interest rate hike for the time being.

Inflation in Canada stood at 3.4% in December; that’s up from 3.1% in November, but much lower than the peak of 8.1% in mid-2022. However, Macklem cautioned that it’s still too early to decide that rate hikes are over, and gave no timeline as to when Canadians could expect the benchmark interest rate to come down from 5%, where it currently stands.

“Inflation is still too high, and underlying inflationary pressures persist,” he said. “We need to give these higher rates time to do their work.”

As 2024 begins, Canadians continue to grapple with a myriad of factors that are putting downward pressure on consumer confidence, including among end-buyers of promotional products. The cost of living has continued to balloon in recent years, due to inflation and hot real estate markets – particularly in major cities like Toronto and Vancouver, where the average home price currently stands at nearly $1.3 million CAD.

Not to mention, Canadian homeowners now face impending mortgage renewals. According to the Canada Mortgage and Housing Corporation (CMHC), more than 2 million Canadians (about 45% of all mortgagees) will be required to renew in 2024 and 2025, at much higher interest rates after the Bank of Canada’s rate hikes in recent months. That looks poised to negatively impact discretionary spending among a large swathe of the public.

The job market has also cooled. Analysts had expected a gain between November and December of about 15,000 new hires. Instead, the unemployment rate held steady at 5.8%, and the country gained just 100 new positions. Waves of layoffs, particularly at U.S.-based tech and media companies in the past weeks, also have people spooked.

Overall, Canadian economic growth has been anemic for more than a year. In its 2024 outlook report, Manulife Investment Management stated that Canadian GDP in November stood at about 0.8%, down from 2.7% last January. Activity has weakened each month since September 2022. Goods-producing industries, like manufacturing and construction, contributed the most to that fall.

End-Buyers Still Cautious

Many promotional products companies say they’re feeling the lack of confidence among their clients. According to just-released data from ASI Research, while 2023 sales among North American distributors hit a new record overall, Q4 numbers rose just 0.1% year over year. It marked the 11^th consecutive quarter of growth, but it was the weakest of the industry’s post-pandemic recovery period.

Mark Jackson, president of SwagDrop (asi/300621) in Oakville, ON, says 2023 started off promising. Then in February, one client laid off 19,000 people, followed closely by another who decided not to move forward with hiring 7,000 new employees. For the rest of the year, many end-buyers held their breath and their budgets.

“I get the sense that people are waiting for the other shoe to drop in this low-growth environment,” says Jackson. “Consumer spending has stayed strong, thanks to substantial pandemic savings and a strong job growth market. But both are starting to wane.”

“People are waiting for the other shoe to drop in this low-growth environment. Consumer spending has stayed strong, thanks to substantial pandemic savings and a strong job growth market. But both are starting to wane.” Mark Jackson, SwagDrop

Jackson says the housing market is a major question mark, with high interest rates impacting homeowners’ ability to make their mortgage payments following renewals. Still, he expects 2024 to be “stronger and more even-keeled” in terms of promo sales.

Inflation and higher costs for products has made distributors and their customers very price-conscious, says Tony Mannucci, national sales manager of DML Creation (asi/48031) in St. Jerome, QC – they want quality and a reasonable cost.

“Some have expressed concern about the higher interest rates and a possible recession,” he says. “But overall, they feel confident about the year to come, and January was off to a good start for most.”

Beyond Canada’s borders, ongoing geopolitical clashes have added to the tension. In recent weeks, Houthi rebels from Yemen, backed by Iran, have attacked cargo ships in the Red Sea, a critical waterway south of the Suez Canal. That’s forcing ships to re-route, extending leadtimes, hiking trade costs and threatening to worsen inflation.

“COVID brought the supply chain to a halt, so we’ve learned to adapt quickly. But it’s scary,” says Mark Alexander, CEO of Brampton, ON-based Cutter & Buck Canada (asi/47967), part of Top 40 supplier Cutter & Buck (asi/47965). “The conflict directly affects the way products arrive in Canada. We’ve been fortunate to avoid massive delays, but the supply chain is very vulnerable.”

Laura Hansen, president of Vancouver-based Image Group Inc. (asi/230059), hasn’t yet felt an impact on corporate spending among end-buyers, with January sales staying consistent year over year. Still, clients are in a “holding pattern” in terms of their economic outlook.

“There’s a lot of turmoil going on in the world without foreseeable solutions,” she says, “and it’s causing unease.”

Retail Brands, Sustainability Lead Popular Trends

For events in Q1, Image Group continues to receive requests for items like notebooks, pens, banners and drinkware. “Awards and recognition products are strong now, as well as warm winter clothing,” adds Hansen.

In recent months, embroidery and laser-etching on larger leather patches (driven by retail) has gained traction among headwear customers, says Mannucci. Meanwhile, lanyard demand is running hot, and inquiries for phone loops have increased as well.

Paul Wieleba, owner of multi-line agency {WE} Promotional Advertising in London, ON, and vice chair of Promotional Products Professionals of Canada (PPPC), says the return of trade show giveaways after several years of virtual and hybrid events in Canada was a welcome trend in 2023 and it looks to continue this year. At the same time, “consumers prefer quality and established brand names,” he says. “They’re willing to invest in superior products rather than focus on quantity.”

“Consumers prefer quality and established brand names. They’re willing to invest in superior products rather than focus on quantity.” Paul Wieleba, {WE} Promotional Advertising

They’re also more educated than ever, often asking for products by name (the Stanley Quencher was one of the most in-demand brands of the past 12 months across North America).

“End-buyers typically have a clear idea of what they’re seeking. Usually it’s brand-name products with a higher price tag,” says Wieleba. “They’ve shopped around before approaching a distributor.”

If recent industry events like ASI Orlando are any indicator, sustainably made items look to be an industry trend with a firm foothold among clients, especially now with stringent eco standards at end-buyers’ organizations.

To meet that demand, Cutter & Buck is on track to make 90% of its products with sustainable materials by next year. “It’s a significant objective, but it’s hugely important,” says Alexander.

Wieleba is eager for more eco-friendly manufacturing, supply chain transparency and diversification in countries of origin. “There’s growing consumer demand for products manufactured outside of China,” he says.

In addition to environmentally friendly materials and sourcing, clients want to see companies involved in philanthropic works. “Customers prefer brands that have a positive story,” says Jackson, “especially those that have giveback programs for tree planting or clean water.”