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Confidence Sees Sharp Downward Revisions

Canadian Economics

By: Walter Bolduc

    

The Index of Consumer Confidence fell to 68.1 this month, ending several consecutive months of increases.

  • The index of consumer confidence dropped 9.2 points to 68.1 points in June – its lowest point so far this year – as every province/region sees declines.
  • While respondents’ views that their current finances were better increased slightly by 0.8 percentage points to 12.4 per cent, views that they had been worse outpaced this with a 1.7 percentage point increase to 33.1 per cent. Although remaining the majority, perceptions that current finances had been the same dropped from 54.5 per cent in May to 51.5 per cent this month.
  • Respondents’ views on their future finances trended towards negativity as views that they would be better or the same decreased. Those who believed they might be better fell 0.5 percentage points to 16.4 per cent, whereas those who believed they would remain the same lost their majority dropping from 52.1 to 48.4 per cent. The proportion who believed they would worsen rose 2.9 percentage points to make up over a quarter of responses at 26 per cent.
  • Like future finances, future job prospects trended negative, with views that there will be more or the same number of jobs available both decreased, while those believing fewer will be available increased. The proportion of respondents believing there will be more jobs lost 1.6 percentage points falling to only 11.2 per cent. While still retaining its majority at 52.8 per cent, the proportion of respondents that believed there would be the same number of jobs as now lost 1.4 percentage points. The only category increasing, those that believe there will be fewer jobs in the future, rose 3.3 percentage points, falling just shy of a quarter at 23.2 per cent. 
  • Following in kind, outlooks on major purchases trended negative. The proportion of respondents that saw now as a good time for a major purchase fell 2.6 percentage points to 10.2 per cent, its lowest point since February. Likewise, those who were unsure fell 1.2 percentage points to 22.9 per cent, and building on its already prodigious share, the proportion of respondents that believed that now was a bad time added 3.9 points to total 66.9 per cent.

Insights

  • June’s Bank of Canada rate hike may have led to snap consumer reactions. On June 7th, the Bank of Canada announced another interest rate hike of 25 basis points, bringing its target to 4.75 per cent. Following no increases to rates since January’s 25 basis point announcement, many consumers may have had begun to think that rates had peaked, inflation was withdrawing in line with the Bank’s goals, and household spending could realign to match a capped rate of 4.5 per cent. Consumers holding such views may have had snap reactions as the 25-basis point hike shocked these underlying notions, causing sharp reversions of expectations. If expectations now change from stability to a future of possibly further hikes, consumers could overcompensate with exceptionally restrained spending in preparation for additional hikes, leading to a downward spiral of consumer confidence.
  • Wildfires across Canada likely impacted consumer confidence and could continue to do so. In mid-June Global News reported there were over 400 active fires across Canada, more than 200 of these considered out of control. Further, as reported by CBC in early-June, on the east coast, thousands had been evacuated, and hundreds of homes had been destroyed. For those displaced, concerns of lodging and property damage costs arise, tampering household financial confidence. Also, due to wildfires, local business activity can be reduced, and local climate conditions can deteriorate. These accompanying issues can greatly impact confidence as people may not be able to work due to air quality and health issues, leading to fears of decreased income, and reduced business activity could lead employees to fear layoffs or reduced hours of work, collectively compromising consumer confidence.
  • Bill C-18 could affect consumer confidence. Bill C-18, “The Online News Act” received royal assent late-June and will compel certain tech companies, such as Meta and Google, to pay for news they share on their platforms. In retaliation, Meta announced it would remove Facebook and Instagram’s news feed for Canadian users. This action could influence Canadian consumer confidence; however, the direction or scale is unclear. A 2019 survey from Abacus Data found that 34 per cent of Canadians get their news from Facebook and Instagram. If this group consumed less news because of Meta’s decision, consumer confidence could become more anecdotal. Additionally, reduced news consumption could also impact the economy by limiting the signaling ability of institutions such as the Bank of Canada.

For more information on how interest rates, wildfires, and other economic conditions impact consumers, please visit our Index of Consumer Spending for further analysis of how Canadians are changing their spending habits.

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