Trade Concern Seeps Into Canadian Consumer Confidence Numbers

It’s been a dramatic reversal in sentiment for Canada’s consumers.

The Bloomberg Nanos Canadian Confidence Index — a composite gauge based on survey questions — continued to tumble in March, dropping to the worst month-end reading in more than a year as households grow increasingly concerned about the durability of the economic expansion.

The index ended the month at 56.8, the lowest since January 2017. Consumer sentiment has now declined every month this year, driven lower by worries over growth, with almost one-in-three Canadians anticipating the economy will weaken over the next six months.

Over the past three months, the drop in confidence from near-record highs reflects a deterioration in financial conditions for households. That includes rate hikes by the Bank of Canada, a weakening Canadian dollar, sharp declines in stock prices and renewed worries about the housing market.

Combined with a slowing economy, an inter-provincial dispute over Kinder Morgan Inc.’s Trans Mountain pipeline between Alberta and British Columbia, and risks associated with outlook for the North American Free Trade Agreement, consumer angst is on the rise.

“We’re dealing with a one-two negative punch of trade uncertainty and energy uncertainty,” said Nik Nanos, chairman of Nanos Research Group. “There is too much unfinished business related to Nafta and Kinder Morgan.” The data also suggest Prime Minister Justin Trudeau failed to generate any boost in sentiment from his budget last month, Nanos said.

The three-month drop in sentiment is one of the largest reversals for the confidence index since weekly tracking by Nanos began in 2013. The index is down 3.2 percent from year-ago levels.

Consumer confidence can be a good barometer of an economy’s overall health. If sustained, the current deterioration in sentiment is consistent with a slowdown in growth of well below 2 percent on an annualized basis.

The Bloomberg Nanos Canadian Confidence Index is based on a four-week rolling average of 1,000 telephone respondents, who are asked questions about whether they are positive or negative about their personal finances, job security, the outlook for the economy and real estate prices. The survey has a margin of error of 3.1 percentage points.

The weekly tracking shows the drop in sentiment occurred at the beginning of the month, with sentiment stabilizing in the second half of March.

Pessimism

The percentage of Canadians giving the most pessimistic responses has jumped to 19.1 percent, versus 14.2 percent at the end of 2017 and 16.7 percent in March last year. The pessimism index, which is even more strongly correlated to GDP data, posted its first year-over-year gain since November 2016.

The decline continues to be driven by waning expectations for the economy, rather than pocketbook issues. Only 18.3 percent of respondents said they expect the economy to strengthen over the next six months, down from 30.5 percent at the end of 2017. The share of Canadians expecting a weaker economy has increased to 30.9 percent, from 19 percent three months ago.

Personal finances and the outlook for real estate have largely been stable or better since January. Job security levels though are showing signs of weakening, which is surprising given how strong the labor market has been, with the jobless rate sitting at a four-decade low.

The share of Canadians who say their job is secure was at 64.1 percent, the lowest rate since March last year. The percentage who say their job is at least somewhat not secure touched 14.3 percent, the highest month-end reading in two years.

Regionally, Alberta recorded declines in sentiment in March, possibly reflecting the pipeline dispute. Quebec posted the highest confidence levels in the country, and is one of only two regions — the other is British Columbia — where sentiment is above year-earlier levels.