Consumer Confidence Hits Its Highest Point in Nine Months

Canadian Economics

  • Reversing its February decline, the Index of Consumer Confidence grew 4.2 points to 75.7 in March—its highest point since June.
  • The burden felt on current finances for consumers by inflation, and rate hikes is waning slightly as a growing number of respondents across Canada indicate their current finances are the same as they were six months ago. In March, respondents who indicated this grew 2.9 points, bringing the total to 53.2 per cent.
  • Households’ outlooks on future finances grew by two percentage points. Those who believe that their finances in the coming six months will remain the same grew to a majority with 50.4 per cent of respondents. Overall, perception of future finances generally improved as the number of respondents with poor outlooks dropped. Meanwhile those who believe it will remain the same or better rose by 1.2 and 0.6 percentage points, respectively.
  • With February job growth coming in higher than predicted, with almost 22,000 new jobs added, the number of respondents who believe that there would be fewer jobs in the coming six months dropped. The number of respondents sharing this view dipped by 1.5 percentage points to only 20.3 per cent. This was paired with a drop of 0.3 percentage points in those who believed there would be more jobs in the coming six months. Outlooks that job prospects will remain as they are now remain the majority while also growing 0.7 percentage points to 52.8 per cent.
  • The outlook for major purchases moves slightly towards a more positive sentiment as those surveyed who believe now is a good time for a big-ticket purchase grew by 0.6 percentage points. Despite dropping 1.7 percentage points, a strong majority—65.2 per cent of respondents—still believe that now is a bad time for a large purchase.

Key Insights

Households have taken notice of the Bank of Canada’s pause. As inflation continues to trend downwards, falling to 5.2 per cent year-over-year in February, the Bank of Canada decided to pause rate hikes in March. On the heels of this news, we have seen improvements in consumers’ outlooks for their current and future finances. In March, we saw the most significant changes occurring in consumers’ outlooks of their future finances, with 3.8 percentage points fewer people holding poor outlooks than previously. This drop is likely tied closely with the pause announcement. With the pause, households are likely less worried about the rising risk of insolvency as they see this pause as a chance to catch up on their debt burden, which has increased dramatically following the series of hikes. This logic coincides with our results as we see respondents from British Columbia—the province with the highest average debt-to-disposable income ratio—demonstrating the most significant growth in consumer confidence this month.

Canada’s upcoming Federal budget could be a double-edged sword for confidence. Finance Minister Freeland expressed that this year’s federal budget would be “exercising fiscal restraint” and highlighted focuses on building a greener economy and “targeted inflation relief,” among others. Inflation relief is of particular interest as it could alter consumer confidence. While actions to offset some of the rising costs on consumers could benefit confidence, they could also dampen outlooks. Such a move could undermine the Bank of Canada’s efforts to rein in inflation by pushing prices higher through the consumer demand channel. The upcoming budget may also impact future job prospects. The movement towards a clean economy relies largely on skilled labour. However, this again could push inflation as the already tight labour market with heightened demand for labour could augment wage growth and reintroduce concerns of a wage-price spiral.