As global debt woes and market turmoil stoke fears of another recession, Canadian consumers are keeping a close eye on the economic forecast. And if waning consumer confidence is any indication, it appears they don’t like what they see.
According to a report released Wednesday by the Conference Board of Canada, consumer confidence declined in August for the fourth consecutive month. The 6.6-point drop, which the Conference Board describes as “significant,” was attributed primarily to “negativity toward future job creation and making a major purchase” -- evidence of a troubling trend that could have significant implications for the real economy.
Consumer confidence, which was at 100 in 2002, now sits at 74.7, the Conference Board reported. It’s the lowest level since late 2009.
As Pedro Antunes, the Conference Board’s director of national and provincial forecast, explains, the dip in consumer confidence shows just how concerned Canadians are about the bad economic news that has dominated headlines in recent weeks.
“People in Canada know that the country’s not an island; that we’re dependent on what’s going on in the global economy,” he told The Huffington Post Canada.
That notion was reinforced Wednesday when TD Bank warned that Canada is running the risk of returning to recession, and the determining factor will likely be economic conditions in the United States and elsewhere.
But while in previous months Antunes says sluggish job growth south of the border was the main drag on Canadian consumer confidence, he suspects that the recent decline was prompted primarily by debt fears.
“It’s the issue of debt, not only in the U.S. but in the rest of the global economy, and the repercussions,” he says. “Are we going to get ourselves into a significant slowdown, or a double dip? We don’t necessarily believe that at the Conference Board, but I think that certainly has an influence on how people view the [economic] outlook.”
And as Antunes points out, what the public thinks can have an influence on the real economy.
Considered by the Conference Board to be a leading indicator of future spending, Antunes estimates that a permanent, 10-point drop in consumer confidence translates into a 0.5 per cent dip in consumer spending five quarters (or a year and a bit) later.
Though Antunes says he is hopeful that the current confidence decline -- 15 points in the past few months -- won’t be permanent, if the decline persists, he says, “You can expect the implications on overall consumer spending to be quite strong.”
The impact will be particularly severe on big-ticket, non-essential items like cars and furniture, he says. A protracted period of low consumer confidence could wipe out recent gains in retail spending.
The latest confidence numbers are further proof, perhaps, of how fragile the recovery has been in the minds of average Canadians.
“We still haven’t gotten back to normal. Where a normal number might be 100, even in the post-recovery peak we never got back to 100,” Antunes says. “I think people are more aware of what’s going on. They’re more concerned, and we’re seeing it show up in the index numbers.”