Canadian consumer sentiment faded last week as the outlook wanes for the economy and real estate prices, according to the Bloomberg Nanos Canadian Confidence Index.
The weekly sentiment measure fell to 58.3 in the period ended Dec. 13, the lowest in more than a month. The index had averaged 59.1 the previous four weeks. The share of respondents who think real estate prices will increase over the next six months dropped to a nine-week low of 36.9 percent.
Canada’s housing market has been stronger than policy makers expected as buyers shrug off efforts by officials to curb borrowing. Still, growing mortgage debt levels may begin to weigh on consumer spending, said Leslie Preston, an economist at TD Economics.
“The need to keep debt accumulation under wraps will likely keep household spending relatively modest over the next few years,” Preston said in a Dec. 13 telephone interview.
The ratio of Canadian household credit-market debt to disposable income rose to a record 163.7 percent in the third quarter, Statistics Canada reported Dec. 13.
There have also been some signs the real estate market is cooling. Canadian existing home sales fell 0.1 percent in November from the previous month, the Canadian Real Estate Association said today, the second straight decline, while housing starts slowed in November, a trend economists forecast will continue into 2014.
With last week’s decline, Canadians “will have to monitor whether this is a potential new trend in consumer confidence or a one-off fluctuation,” said Nik Nanos, head of Ottawa-based polling firm Nanon Research.
Bloomberg Nanos’s confidence index has two sub-indexes: the Pocketbook Index, based on survey responses to questions about personal finances and job security, and the Expectations Index, based on surveys about the outlook for the economy and real-estate prices.
The Pocketbook Index fell to 60.4 from 60.8, while the Expectations Index fell to 56.2 from 57.8, according to the Nanos report.
Declining sentiment probably reflects “the darker tone of policy makers and capital market professionals regarding the likely path of the domestic economy, real estate prices and the economic imbalances that will be on ongoing concern at the Bank of Canada,” said Joseph Brusuelas, senior economist with Bloomberg LP.
While falling last week, the Bloomberg Nanos aggregate index is still above the 2013 average of 57.2 and has climbed from a year-low of 50.2 in March. The gauge has averaged 58.7 since the beginning of September.
Improving confidence in the second half of the year largely coincided with increasing optimism about personal finances, real estate prices and job security.
At the same time, Canadians’ outlook for the economy has shown little growth. The share of Canadians who say they expect the economy will be stronger in the next six months fell to 21.5 percent last week, down from 24.4 percent the previous week and in line with the 2013 average of 21.4 percent. Those saying it will be weaker fell to 20.5 percent from 21.2 percent. That gauge has averaged 20.8 this year.
Canada’s economy has been growing less quickly than policy makers earlier forecast, prompting Bank of Canada Governor Stephen Poloz to drop language about the need for future interest rates in an October interest rate announcement. Last week, Poloz said he expects his policy interest rate to remain unchanged for “quite some time.”
The central bank has been particularly concerned about weak inflation, which slowed to 0.7 percent in October and has been below the Bank of Canada’s 2 percent target for 18 consecutive months.
“Of course, when we are already below target, as we are today, we care more about downside risks than upside ones,” Poloz, 58, said in a Dec. 12 speech in Montreal.
Other releases this week include October reports for manufacturing shipments, wholesale and retail sales.
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