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Index of Consumer Confidence for December 2024: A Rising Tide of Pessimism

Canadian Economics

By: Loubna Zebiri

The Index of Consumer Confidence fell 10 points to 60.0 (2014=100) in December, the largest decrease in a year.

  • The sharp decline in consumer confidence this month follows the decrease that began last month, marking a significant drop after several months of improvement as interest rates fell. This month’s weakness is broad-based, as the balance of opinion deteriorated for all four questions asked.
  • The proportion of Canadian households thinking that their current financial situation is better than a year ago decreased 1.7 percentage points to 11.7 per cent in December. At the same time, the share of those believing that their current finances have worsened compared to last year rose 3.9 percentage points to 33.9 per cent.
  • The share of Canadians anticipating their finances to improve over the next six months decreased modestly in December, down 0.3 percentage points to 16.2 per cent. Meanwhile, the percentage of respondents expecting their financial situation to worsen rose 2.7 percentage points to 26.4 per cent. 
  • Despite inflation falling within the Bank of Canada’s target, rising economic uncertainty and cost of carrying debt are fueling consumer pessimism.
  • Compared to last month, the proportion of respondents expecting more jobs over the next six months fell to 5.9 per cent, the lowest share since 2009, reflecting a decline of 1.8 percentage points compared to November. The pessimism is likely related to a rising unemployment rate as interest rates cooled off economic growth.
  • Respondents also remained hesitant to make a major purchase, as the share who felt now was a good time fell 1.4 percentage points to 14.4. A downward trajectory in interest rates combined, an uncertain global environment and a weak economic performance are likely to blame.

Insights

Employment increased modestly in November, with approximately 51,000 new jobs created all of which were full-time jobs (+54,000). Despite the increase in jobs, strong population growth continues to fuel labour force growth, and so the unemployment rate continued to trend upwards. A slackening labour market likely is to blame for some of the newfound pessimism this month, especially as it relates to views about the future.

Wage growth continues to outpace inflation, with both on a downward trend. While the Canadian economy has avoided a wage-price spiral due to restrictive monetary policies, a sluggish economic activity and cooling labor market are placing additional pressure on households who are dealing with fewer job opportunities and high interest rates that strain their finances.

Inflation slowed again to 1.9 per cent in November. This slowdown in price growth was broad-based, with most components of the Consumer Price Index (CPI) experiencing declines. Black Friday sales and related promotions, which are common in November, likely played a role in driving lower prices across several components.

As we head towards the end of the year, the economy continues to face headwinds. Subdued consumer and business confidence has resulted in restrained consumer spending and limited business investment. While efforts to tame inflation have been working, these measures have also dampened economic activity and put additional strain on the labor market.

Looking ahead, the impact of lower interest rates should materialize starting next year, offering potential relief to the economy and rebalancing the labour market. These reductions in borrowing costs are likely to stimulate both consumer spending and business investment, fostering economic activity. However, the effects will likely be gradual, as businesses and consumers remain cautious amid ongoing uncertainties.

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