Canada Consumer Sentiment Falls Third Week on Job Outlook

The Bloomberg Nanos Canadian Confidence Index fell for a third consecutive week as optimism over job security deteriorated.

The measure of the economic mood of Canadians fell to 58.0 in the seven days through Oct. 18, from 58.5 the previous week. The reading for job security dropped to 66.6 from 68.4.

Employment has grown by 113,100 positions through September, the slowest pace since 2001 outside of the last recession, as manufacturers and governments fire workers to cut costs. Discouraged young people dropped out of the labor market faster than new jobs were created in September, reducing the participation rate to the lowest in more than a decade.

“Sentiment declined primarily due to rising concerns about the domestic labor market which reflects the slower pace of overall economic activity,” said Joseph Brusuelas, senior economist at Bloomberg LP in New York. “Disenchantment with the labor market, especially among younger people that are exiting the workforce due to lack of opportunity, is likely to become a rising policy concern as Canada heads into 2014.”

Prime Minister Stephen Harper re-opened Parliament last week with a so-called Throne Speech that lays out the government’s agenda saying jobs and the economy are its top priorities. Harper signed a free-trade pact with the European Union the government says will create 80,000 Canadian positions.

‘Three-Week Slide’

The trade agreement and the end of the U.S. government shutdown may trigger a rebound in confidence, said Nanos Research Group Chief Executive Officer Nik Nanos, who added the index’s recent decline was driven by political deadlock in the U.S., which consumes about three quarters of Canada’s exports.

“With the U.S. debt-ceiling impasse ended and Prime Minister Stephen Harper’s focus on a trade deal with Europe, we may see an abatement of the three week slide in Canadian consumer confidence,” said Nanos, head of the Ottawa-based research company.

Optimism over future conditions climbed in the latest survey. The share of people who believe the economy will improve in the next six months rose to 20.1 percent, from 19.9 percent in the previous survey, and 37.4 percent said real estate values in their area would rise in that period, up from 36.8 percent.

About 21.5 percent said their finances have improved over the last year, down from 21.6 percent in the prior survey.

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

Economic Outlook

The Expectations Index, based on surveys about the outlook for the economy and real estate prices, fell to 56.0 from 56.2, according to the Nanos report.

The Pocketbook Index, based on survey responses to questions about personal finances and job security, fell to 60.1 from 60.8.

Consumer sentiment climbed to a two-year high last month as the Canadian housing market averted the “hard landing” that some policy makers and analysts had been warning about. Existing home sales rose for a seventh month in September and prices were up 8.8 percent from a year earlier, the Canadian Real Estate Association said in an Oct. 15 report.

Output Drivers

The Bank of Canada has blamed tepid global demand for weakness in the nation’s economy, as exports and business investment fail to take over from tapped out consumers as output drivers. The central bank will cut its growth forecast for the second half of this year to between 2 percent and 2.5 percent at an Oct. 23 rate decision, Senior Deputy Governor Tiff Macklem said in Toronto earlier this month.

The central bank’s policy interest rate has been 1 percent since September 2010 in the longest pause since the 1950s, and Governor Stephen Poloz said the economy’s expansion has “disappointed.”

“What we need is growth that is significantly above 2 percent to begin reducing the excess capacity that we have in the economy,” Poloz said while attending a meeting of Group of 20 officials in Washington on Oct. 11.

Canadian consumer prices advanced at a 1.1 percent pace for a second month in September, close to the bottom of the central bank’s target range, Statistics Canada said Oct. 18.

There are signs Canada will benefit from reviving global demand as the U.S. rebound gathers steam, according to Avery Shenfeld, CIBC World Markets chief economist. Global output may accelerate to more than 4 percent next year while U.S. growth quickens to 3.2 percent from 1.5 percent in 2013, he told investors Oct. 17 at the Bloomberg Focus Day Symposium in Toronto.

“If the rest of the world actually starts to grow at a faster clip, that’s critical to getting growth here in Canada,” said Shenfeld, who predicts Canada’s output growth will accelerate to 2.3 percent in 2014 from 1.7 percent this year.

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