Confidence Drops to Lowest Point Since Recession Ended, Nanos Poll Shows

Canadians’ confidence in the economy has fallen to the lowest since the country emerged from last year’s recession as households damp their outlook for the recovery and real estate values, according to Nanos Research.

The Nanos Economic Mood Index, which is derived from quarterly surveys that question Canadians on their personal finances and outlook for the economy, job security and real estate, fell to 111.4 in a poll taken Oct. 1 to Oct. 6. The index has fallen three consecutive quarters after touching a high of 121.2 in the fourth quarter of 2009, according to a copy of the survey provided to Bloomberg News.

“I just see a slow erosion, largely a result of where they expect the economy to be in the next while,” Nik Nanos, president of Ottawa-based Nanos Research, said in a telephone interview.

The index mirrors a deteriorating outlook for the global recovery in recent months that prompted the Bank of Canada this week to cut its forecast for growth and pause from further interest rate increases. The bank cited a weaker U.S. outlook, more moderate growth in emerging economies and slower consumption in Canada.

The Bank of Canada kept its benchmark interest rate unchanged on Oct. 19 after three previous increases, and lowered its economic outlook for the next five quarters as household spending and U.S. growth moderate. The bank cut its forecast for growth this year to 3 percent from 3.5 percent, and next year to 2.3 percent from 2.9 percent.

Cautious Forecasts

Finance Minister Jim Flaherty said Oct. 12 his government will begin using more cautious growth forecasts for revenue because economic risks are tilted to the “downside.”

Nanos said households in part take their cue from policy makers to formulate their own outlooks.

“That’s part of the broader narrative on influencing consumers,” Nanos said. “If Minister Flaherty continues to be cautious, that’s a key signal to consumers to also be cautious.”

The Nanos Economic Mood Index is based on surveys conducted quarterly among about 1,000 Canadians by telephone. It’s a composite of the Nanos Expectations Index that tracks views related to the strength of the economy and real estate market, and a Pocketbook Index based on questions related to personal finances and job security.

The first data point of the indexes, which started at 100, was the second quarter of 2008. The Expectations Index fell to 123.4 in the third quarter of this year, the lowest level since the second quarter of last year. The proportion of Canadians who predict the economy will strengthen in the next six months fell to 29.7 percent from 39.4 percent in the previous quarter, according to the survey. The share of people saying the economy will weaken increased to a one-year high of 17.7 percent.

The polling has a margin of error of 3.1 percentage points.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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