Confidence drops to its lowest point since the start of the Pandemic

The Index of Consumer Confidence tumbles 12.4 points in August, its lowest point since April 2020.

This month, the Consumer Confidence Index dropped to 61.2, down from 73.6, its largest single month-to-month drop this year.

Consumers’ outlooks on their current finances revealed a decline in optimism this month, with the proportion of individuals perceiving their current finances as better decreasing by 3.2 percentage points to 10 per cent of respondents. Simultaneously, there was a marginal increase of 1.4 percentage points in those perceiving their finances as the same, rising from 51.4 per cent to 52.8 per cent. Lastly, the proportion of respondents viewing their current finances as worse increased slightly, increasing from 32.9 per cent to 34.6 per cent.

Respondents’ outlooks on future finances indicate a decline in optimism, with the percentage of individuals expecting improved future finances decreasing from 16 per cent to 14.7 per cent. Concurrently, there was a slight uptick in those anticipating consistent future finances, rising from 50.2 per cent to 51.3 per cent. Moreover, the proportion of respondents foreseeing future financial challenges increased from 23.6 per cent to 25.6 per cent.

Perceptions regarding future job prospects underwent notable shifts this month, as the percentage of individuals expecting an increase in job opportunities decreased from 12.6 per cent to 10.9 per cent, while those foreseeing the same number of job opportunities declined from 54.6 per cent to 50.4 per cent. Conversely, there was a notable increase in the proportion of respondents anticipating a decrease in future job availability, rising 4.8 percentage points from 20.3 per cent to 25.1 per cent.

Sentiments around big-ticket purchases exhibited a negative trend this month, with the percentage of individuals viewing now as an opportune time for a major purchase decreasing from 10.4 per cent to 8.7 per cent. Conversely, there was a slight rise in those deeming now unfavorable for such purchases, with the proportion holding this view increasing from 68.1 per cent to 68.2 per cent. Finally, there was a modest increase in the proportion of respondents uncertain whether now is a good or bad time for major purchases, growing from 21.5 per cent to 23.1 per cent.

Insights

Inflation news may have reinforced fears that further interest rate hikes are required. Recent inflation reports, notably the year-over-year uptick to 3.3 per cent in July following the positive news of a brief decline to 2.8 per cent in June, may have intensified concerns about further interest rate adjustments from the Bank of Canada. This resurgence in inflation may have raised doubts among consumers about the Bank’s ability to efficiently steer inflation back to the targeted range. It could potentially erode consumer confidence in the process. This uncertainty could foster expectations of impending rate increases to achieve the Bank’s 2 per cent inflation goal, possibly contributing to heightened consumer pessimism concerning future finances and major purchases as they anticipate elevated costs.

This month’s announcement of increased unemployment is mirrored in consumers’ confidence. This month, a noteworthy shift towards pessimism regarding future job opportunities was observed at the national level, with just over a quarter of respondents indicating an expectation of reduced job availability in the future. This result represents the highest this proportion has been since April 2021. Concurrently, August’s announcement of a rise in Canada’s unemployment rate to 5.5 per cent, coupled with the loss of over 6,000 jobs last month, underscores this trend. The revelation of job losses after months of continuous growth has likely impacted perceptions, affecting not only those directly affected by the job cuts but also individuals poised to enter the workforce, causing them to anticipate a more challenging job search landscape. If subsequent labour market reports continue this narrative, it is possible that overall consumer confidence could experience further deterioration.