
Confidence Creeps Upward Despite Looming Trade War
The Index of Consumer Confidence increased by 4.7 points in January, bringing the index to 64.7 points (2014 = 100).
- Based on improvements across three of the four survey questions, this month’s survey results indicate that consumers are more optimistic than they were in December.
- The largest improvement occurred in consumer outlooks related to current finances. The share of respondents who say their current financial situation has improved increased by 1.4 percentage points to 13.1 per cent. Meanwhile, the share of respondents who say their current financial situation has weakened decreased by 2.7 percentage points to 31.2 per cent. Views on whether future finances will improve remained relatively unchanged.
- Outlooks on job prospects improved on a monthly basis, with the share of respondents who believe job prospects were improved increasing by 1.4 percentage points to 7.3 per cent. Meanwhile, the share of respondents who believe job prospects had worsened decreased by 1.0 percentage points and stood at 32.0 per cent. The largest share (46.1 per cent) said they perceive no improvement in job prospects, a decrease of 1.3 percentage points.
- Similar to views on future finance, the category related to making major purchases changed little, remaining in line with the previous month’s results.
Key insights
The effects of U.S. tariffs on Canada’s consumer confidence would be substantial. Trade tariffs imposed by the United States would likely impact consumer views across all categories: current and future finances, job prospects, and major purchases. Tariffs would weaken the Canadian dollar, effectively raising the price of U.S. goods imported into Canada. This inflationary effect would be increased if Canada were to retaliate with its own tariffs—an intended response signalled by the federal government. Revived inflationary pressure would also risk slowing interest rate cuts, which would also hurt confidence.
Tariffs would also impact the labour market. Officials from Ontario have estimated that the direct impact to their province could approach 500,000 jobs lost, with additional losses possible through secondary effects on its economy. The size of any tariffs would be key in determining the scale of losses, with the effects likely to be non-linear.
Predicting the U.S. president’s next move is difficult to say the least and details concerning revised trade policy remain highly elusive. But any tariff, regardless of size, would come with cost and ultimately negatively impact consumer outlooks.
Consumers draw positives from December’s job growth and interest rate cut. Besides the Atlantic region, consumers indicated improved confidence in relation to current finances. Last year ended on a higher note with another large interest rate cut and a positive labour report showing job gains in regions that had been less active in the prior months. Other policy actions also lent a hand to confidence, albeit to a lesser extent, such as the federal government’s GST/HST tax break, which received substantial publicity.
Despite easing inflation and falling interest rates, confidence remains low. In the two years leading to January 2025, confidence averaged 65.9 per cent, a far cry from the average of 114.8 seen in the two years preceding the pandemic. Among the questions posed to ICC survey respondents, optimism was most subdued in relation to job prospects and the timing of major purchases. During this time, the unemployment rate rose from 5.0 per cent in January 2023 to 6.7 per cent by December 2024. With layoffs remaining fairly stable, the increase in the jobless rate is more attributable to new labour market entrants struggling to move into employment.
Shifting to major purchases, the last two years have seen consumers confront higher interest rates and an erosion of housing affordability. Compared to the pre-pandemic period, principle and interest payments as a share of average household income have risen from 29.9 per cent to 42.2 per cent. We forecast job growth and the number of housing starts will improve over the coming years, but recouping consumer confidence will take time.

For further discussion on the new U.S. administration from us, please visit our recently released article Trump, Tariffs and Trade.
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