Canadian Consumer Confidence Index Falls on U.S. Concern

Canadian consumer sentiment fell for the first time in more than a month as budget disputes in the U.S. prompted views of the economy to deteriorate, according to the new Bloomberg Nanos Canadian Confidence Index.

The index, a weekly measurement of the economic mood of Canadians, fell to 59.04 in the period ended Oct. 4, from 59.75 the previous week. It marks the first decline since the week ended Aug. 30 for the index, which tracks consumers’ perceptions of the strength of the economy, job security, real estate and their financial situation.

A measure of attitudes about the economy slumped as lawmakers in the U.S. failed to resolve their differences over the nation’s budget, culminating last week in a shutdown of the government. Finance Minister Jim Flaherty said Sept. 30 the dispute underscores that the Canadian economy remains vulnerable to global uncertainties.

“In the wake of the U.S. budget showdown, all measures that make up the Canadian index showed some negative pressure this week,” said Nik Nanos, chairman of Nanos Research Group, the Ottawa-based polling company. “I would expect that over the next few weeks we will find out whether there is a spillover chill-effect on Canadians consumer confidence.”

The Bank of Montreal on Oct. 4 lowered its forecast for U.S. growth in the fourth quarter by half a percentage point to 2.5 percent, citing the shutdown of the U.S. government.

The share of Canadians who believe the economy will become stronger over the next year fell to 21 percent last week from 22.4 percent, while those who expect it to weaken increased to 17.6 percent from 16.5 percent.

Rattling Moods

The first partial closing of the U.S. government in 17 years risks further rattling consumers’ moods at the same time as the U.S. nears an Oct. 17 deadline to raise the debt limit and avoid default, said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.

“The policy brinkmanship in Washington carries further risk to Canadian consumer and business sentiment the closer the U.S. approaches the day when its Treasury runs out of cash,” Brusuelas said.

The Bloomberg Nanos Canadian Confidence Index has two sub-indexes: the Bloomberg Nanos Canadian Pocketbook Index on personal finances, and the Bloomberg Nanos Expectations Sub-index on future views. The data in the indexes date to 2008 and is based on phone interviews with 1,000 consumers, using a four-week rolling average of 250 respondents. The results are accurate to within 3.1 percentage points.

Pocketbook Index

The Pocketbook Index, based on survey responses to questions on personal finances and job security, fell to 60.77 from 61.37. The share of Canadians who report their jobs are secure fell to 68.8 percent from 69.8 percent, while those saying they’re not secure rose to 11.4 percent from 10.6 percent.

The expectations index, based on surveys for the outlook for the economy and real estate prices, fell to 57.32 from 58.13 as fewer Canadians predicted home prices would rise.

The decline in sentiment in Canada also mirrors a similar drop in the U.S. over the past week as the Bloomberg Consumer Comfort Index, a separate gauge of consumer sentiment in the U.S., fell for the first time in four weeks.

Before last week’s drop, Canadian consumer sentiment had climbed to the highest in more than two years amid data that have shown employment rising, the housing market remaining buoyant and the economy accelerating.

Canada’s economy grew at its fastest pace in two years in July, Statistics Canada reported Sept. 30, with the 0.6 percent advance reversing the prior month’s drop.

Housing Market

Concerns that Canada’s housing market will cool had been dissipating until last week. Home sales in Canada’s largest markets surged in September from a year earlier as historically low interest rates continue to lure buyers, regional data show. Purchases of existing homes in Toronto rose 30 percent in September from a year earlier, the city’s real estate board reported Oct. 3.

“The Canadian consumer is holding well and steady,” said David Williamson, head of retail and business banking at Canadian Imperial Bank of Commerce, said in an Oct. 1 interview.

The Bloomberg Nanos gauge of Canadians’ views on real estate weakened last week, with 36.6 percent polled predicting increased real estate values in their neighborhoods, down from 38.1 percent a week earlier.

Canada Mortgage & Housing Corp., the Ottawa-based housing agency, will report housing starts data for September tomorrow, with economists forecasting home starts will grow to an annual pace of 185,000 from 180,300 in August.

Elusive Exports

Concerns that the global economy will falter remain. Bank of Canada Senior Deputy Governor Tiff Macklem said Oct. 1 the nation’s economy will expand more slowly this year than the central bank has forecast because export growth remains “elusive.”

After an initial burst following the recession, Canada’s economy began to slow last year amid weak global demand for its goods and a slump in business capital spending. Until Macklem’s speech, the central bank had predicted a recovery in exports would begin at the end of this year.

Statistics Canada will report trade data for August tomorrow. Economists surveyed by Bloomberg News forecast a 20th consecutive monthly trade deficit, with the median estimate pegged at a C$680 million trade gap.

The statistics agency this week is also releasing data on new home prices and employment. This morning, it released its building permits report, showing the value of municipal permits dropped 21.2 percent in August, reversing a 21.4 percent gain a month earlier.

Jobs Report

Canada probably recorded a 13,500 gain in employment in September, a second straight monthly increase, according to the median estimate of economists surveyed by Bloomberg. The jobs report is scheduled for an Oct. 11 release. Canada has averaged monthly job gains of about 13,000 this year, half last year’s pace.

The decline in confidence last week was widespread among most age groups, income levels and regions of the economy. Consumers in prairie provinces such as Alberta led declines among regions. Canadians earning between C$60,000 and C$74,999 a year posted the biggest decline in confidence.

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