Canada Consumer Sentiment Falls a Second Week on Housing

Canadian consumer confidence declined for a second straight week as pessimism grew about the outlook for the economy and real estate prices, according to the Bloomberg Nanos Canadian Confidence Index.

The weekly sentiment measure dropped to 57.8 in the period ended Dec. 20, the lowest in almost two months. Confidence declined in all four subjects tracked: personal finances, the economy, job security and real estate. The share of respondents who think real estate prices will rise over the next six months slipped to 34.8, the lowest since August.

Canada’s housing market, rated the most overvalued in the world this month by Deutsche Bank AG, is showing signs of cooling after surging earlier this year. Canadian existing home sales fell 0.1 percent in November from the previous month, the second straight decline, the Canadian Real Estate Association said Dec. 16.

While the ratio of Canadian household debt to disposable income rose to a record in the third quarter, the pace of credit-market debt growth was stable, Statistics Canada said Dec. 13.

Real estate is a “key pillar of consumer confidence,” said Nik Nanos, head of Ottawa-based polling firm Nanos Research Group. “Shifts on that measure could be indicative of the future direction of the Canadian economy.”

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.

Less Optimism

The Pocketbook Index dropped from 59.7 from 60.4, while the Expectations Index fell to 55.9 from 56.2, according to the Nanos report.

The share of Canadians who say they’re better off financially over the last year fell to 18.8 percent from 19.4 percent the previous week. Those who say the Canadian economy will improve in the next six months declined to 20.3 percent from 21.5 percent, while the share of respondents saying they feel secure or somewhat secure in their jobs dropped to 66.5 percent from from 67.0

“Despite modest overall growth in the economy, Canadian sentiment remains in a modest downward trend,” said Joseph Brusuelas, economist with Bloomberg LP. “Wage growth remains tepid which likely reinforces the recent increase in consumer discontent.”

While falling for two straight weeks, the Bloomberg Nanos Canadian Confidence Index has climbed from a year-low of 50.2 in March.

Regional Breakdown

Confidence declined in every region except Quebec, and across all age groups. Sentiment fell in every income class except those who earn between C$15,000 ($14,100) to C$29,999 per year.

The Bank of Canada forecast that the economy will gain momentum in 2014 after a slowdown earlier this year. In an interview with Bloomberg News last week, Governor Stephen Poloz said it will take a “couple more years” for the economy to climb out of the “crater” left by the global financial crisis.

Statistics Canada reported today the economy expanded 0.3 percent in October, the fourth straight monthly gain, led by manufacturing output. From a year earlier, the economy grew by 2.7 percent, the statistics agency said.

Poloz said the central bank still believes the housing market is on track for a “soft landing,” avoiding the sharp correction seen in the U.S. The increase in household debt levels will probably flatten as the economy recovers and incomes increase, he said.

The central bank has also said the risks posed by weak inflation have become more important. The consumer price index rose 0.9 percent in November from a year ago, holding below the 1 percent floor of the bank’s target band for a second straight month, Statistics Canada reported Dec. 20.

“We still have that pull from that crater underneath us,” Poloz said.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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