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Consumer Confidence Plunges to Historic Low

Canadian Economics

By: Loubna Zebiri

The Index of Consumer Confidence fell 8.4 points to 44.2 (2014 = 100) in March. The survey dates are from March 7 to March 16.

  • Building on last month’s decline, the consumer confidence index has now reached its lowest level on record. This month’s deterioration in confidence is broad-based with the balance of opinion worsening across all four survey questions.
  • The largest decline in confidence this month was seen in labour market expectations. When respondents were asked about future job prospects, the share anticipating fewer job opportunities in six months from now increased 8.6 percentage points to 49.6 per cent, which marks a new historic high, surpassing the previous record of 49.4 per cent set in March 2009.
  • Meanwhile, the proportion of respondents expecting better employment prospects six months from now declined by 1.9 percentage points to 4.3 per cent, the lowest level since January 2009.
  • The decline in job market sentiment is not a recent development, it has been a persistent trend driven by ongoing economic conditions. However, the situation has worsened in recent months, as rising economic uncertainty amplifies concerns about future employment prospects.
  • When asked about their overall financial situation, respondents expressed sentiment similar to that regarding the labor market, reflecting a broad-based decline in economic confidence.
  • The share of consumers perceiving a deterioration in their current financial situation compared to six months ago increased 1.5 percentage points to 35.4 per cent. Simultaneously, the proportion of consumers foreseeing a worsening future financial outlook rose by 4.7 percentage points to 33.9 per cent, a record high not seen since 2020.
  • Consumers’ financial confidence has been on a steady decline since March 2022, a date when the Bank of Canada began its cycle of interest rate hikes to curb inflation. Rising borrowing costs have significantly increased debt burdens, while subdued purchasing power, driven by persistent high prices, has further strained household budgets.
  • Despite easing inflation and falling interest rates, ongoing economic uncertainty remains a significant factor impacting consumer sentiment. Concerns about job security, coupled with broader economic volatility, including the possibility of an escalating trade war with the United States, are keeping Canadian households on edge.
  • Views on major purchases followed a similar trend. The share of consumers thinking it is a bad time to make a major purchase increased 4.6 percentage points to 67.4 per cent compared to last June, the first month of interest rate cuts.  At the same time, the proportion of households viewing it as a good time to make a major purchase decreased by 1.9 percentage points compared to the same month.

Insights

Economic uncertainty weighs on job market growth. The labour market showed signs of a slowdown in February, with more modest job gains. Additionally, our hiring index for the month of February presented a subdued outlook as well, suggesting a cautious approach to workforce expansion and hiring activity. While overall economic conditions have shown some improvement, the lingering uncertainty surrounding the potential impact of the tariff shock has undermined business confidence, particularly among export-oriented firms.

The tariff shock will lead to job losses in the coming months. The disruption in trade dynamics will create added pressures on businesses, further hindering job growth. We expect the job market to add approximately 97,500 new jobs in the first quarter of 2025, before experiencing a decline of around 159,000 jobs in the second quarter, as businesses adjust to the ongoing tariff-related challenges.

Uncertain price developments amid tariff impact. Inflation, which was stable during the GST tax holiday period, rose in February as the holiday ended. While falling interest rates aim to support economic activity, the future of inflation remains uncertain, especially with the potential impact of tariffs. The abolition of the carbon tax may offer some relief, but its effect on inflation is expected to be limited given the circumstances. Our call for inflation in the first quarter of 2025 is 2.5 per cent, rising to 2.9 per cent in the second quarter.

Tariffs impact weighs on home sales. While consumers have been expressing caution regarding major purchases, the recent tariff uncertainty translated that caution into real-world behavior, as reflected in February’s sharp decline in home sales. Potential increases in costs due to tariffs, combined with ongoing concerns about job security, may further erode consumer confidence and spending.

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