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Labour Market Weakness Drains the Consumer Confidence

Canadian Economics

By: Loubna Zebiri

The Index of Consumer Confidence decreased 1.3 points in November, lowering it to 70.0 points (2014 = 100).

The Index of Consumer Confidence marks its first decrease in four months:

  • This month’s results suggest that consumers perceive no substantial change in their overall financial situation. However, they anticipate a deterioration in the labor market in the near future which aligns with last month’s labour force survey data.
  • The proportion of Canadian households thinking that their current financial situation is better than a year ago increased 0.8 percentage points to 13.4 per cent in November. However, this increase was offset by a similar rise in the share of those believing that their current finances have deteriorated compared to last year. This share is now at 30.0 per cent. The share of those perceiving their current financial situation remained unchanged dropped 1.7 percentage points to 53.9 per cent in November.
  • The share of Canadians anticipating an improved financial situation six months from now increased in November, up 1.2 percentage points to 16.5 per cent. Concurrently, the percentage of Canadian consumers expecting their financial situation to worsen experienced a similar uplift, rising 1.1 percentage points to 23.7 per cent. The portion of respondents foreseeing no change in their future finances decreased 2.5 points to 50.6 per cent.
  • Consumer sentiment about future job prospects was the primary driver of pessimism in November. Compared to last month, the proportion of respondents anticipating an increase in job availability over the next six months fell to 7.7 per cent, reflecting a decline of 0.6 percentage points compared to October.  
  • Simultaneously, the percentage of individuals believing there would be fewer job opportunities six months from now rose 3.2 percentage points to 29.5 per cent, the highest monthly increase in a year.
  • Optimism also declined when it comes to making major purchases. The percentage of respondents believing it is a good time to make a major purchase fell 0.2 percentage points to 15.8 per cent. However, the share of those perceiving it a bad time to make costly purchases decreased as well, falling 0.2 percentage points to 28.6 per cent.
  • This month’s index reflects the mixed sentiment among Canadian households concerning the overall economic landscape. While declining inflation and reduced key interest rates provide some relief to their finances, the softening labor market raises concerns about future employment opportunities.

Key insights

October CPI data showed a 2.0 per cent year-over-year increase in inflation, up 0.4 basis points from last month. Shelter inflation remains high at 4.8 per cent, driven by a significant 7.1 per cent rise in rented accommodation costs. Owned accommodation inflation rose 5.0 per cent, largely due to a 17.4 per cent increase in mortgage interest costs. Shelter and utilities now make up 25 per cent of Canadian households’ disposable income, a share that is expected to grow amid ongoing affordability challenges.

The housing market’s demand-supply imbalance continues to strain affordability. Yet, despite the financial pressures, homeowners have remained resilient as mortgage arrears have been weak compared to rents. Arrears may be expected to rise however, as mortgage renewals at higher rates will add to the average Canadian household debt level.

The latest employment report in November shows a weak gain of 14,500 jobs, a significant slowdown from the previous month. Full-time jobs were up by 25,600 while part-time positions were down by 11,200. Meanwhile, the unemployment rate held steady at 6.5 per cent. Despite recent interest rate cuts, the labor market continues to weaken, with companies scaling back investments and hiring and households adjusting their spending habits due to rising debt levels. For the remainder of the year, employment is expected to remain stagnant, and unemployment is likely to rise.

The outcome of the US elections has been a focal point of attention in Canada, drawing interest from governments, businesses, and households alike, given its potential impact on the Canadian economy. There is a potential that the newly elected US administration could impose higher taxes on all imports. If Canadian exports are targeted, we could see the Canadian government retaliating with tariffs on American goods as well. This escalation could put additional pressure on the Canadian consumers. For households, higher costs on imported goods could drive up prices, erode purchasing power, and weaken consumer confidence. As a result, consumer spending may decline, potentially dampening economic growth across Canada.

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