Canada Consumer Confidence Falling Adds to Harper’s Woes

Canadian consumer confidence fell for a fourth straight week, adding to the challenges Prime Minister Stephen Harper faces as he tries to stem a scandal over expenses claimed by three senators he appointed.

The Bloomberg Nanos Canadian Confidence Index, a weekly measure of the economic mood of Canadians, dropped to 57.7 in the seven days through Oct. 25, from 58.0 the previous week. The pocketbook index, based on survey responses about personal finances and job security, declined to 58.70 from 60.1

“If confidence continues to erode, it’ll be a risk for the government,” said Nik Nanos, chief executive officer at Nanos Research Group in Ottawa. “The Conservative franchise has been built around sound economic stewardship.”

The decline in confidence probably reflects slowing economic growth and concern among households about their ability to pay their debts, said Joseph Brusuelas, senior economist at Bloomberg LP in New York. The Bank of Canada last week dropped language about the need for future interest rate rises, citing a slower-than-projected pickup in exports and business spending.

“Household debt levels are the sword of Damocles hanging over the Canadian economy,” said Brusuelas. “Should the urban property bubble bust before the Bank of Canada can deflate it, the unusually elevated leverage of Canadian households will come back to haunt policy makers.”

Expenses Scandal

The central bank maintained its warning last week that Canadian consumers are carrying too much debt in explaining its decision to leave the benchmark lending rate at 1 percent.

The Senate expenses scandal has dogged Harper this year and undermined his efforts to keep the public’s attention on his economic record. Harper re-opened Parliament this month with a so-called Throne Speech that laid out the government’s agenda, saying jobs and the economy are priorities. Harper said Oct. 18 that Canada has reached an agreement in principle on a trade pact with the European Union.

Nigel Wright, a former managing director at Toronto-based private-equity firm Onex Corp., resigned as Harper’s chief of staff in May amid a police investigation following the disclosure he paid about C$90,000 ($86,100) to Senator Mike Duffy to help cover ineligible expense claims.

Government Senate leader Claude Carignan introduced a motion this month to suspend Duffy, a former television broadcaster who was appointed by Harper in 2009. He resigned from the Conservative caucus in May over the expense scandal.

Senate Testimony

Duffy said in Senate testimony last week that Harper ordered him to repay the expenses because the allegations would erode support among Conservative supporters. Harper denied Duffy’s version and said he told all Conservative lawmakers they should repay any ineligible expenses.

A poll last week showed the Conservatives trailing the Liberal Party in voter support. The Liberals have the support of 37 percent of voters, compared with 29 percent for the Conservatives and 23 percent for the New Democratic Party, according to a Nanos Research poll released Oct. 24. “You have a political one-two punch: a tepid economic environment and a controversy that is now getting closer to the prime minister himself,” Nanos said. “The risk to the Conservatives is their success has been built around Stephen Harper.”

Former Conservative senators Pamela Wallin and Patrick Brazeau also face suspension from the upper house of the nation’s legislature, whose 105 members are appointed by the prime minister.

Housing Market

The Bloomberg Nanos Canadian Confidence Index has two components: the Bloomberg Nanos Canadian Pocketbook Index on personal finances and job security, and the Bloomberg Nanos Expectations Index, which tracks views on the economy and real-estate prices.

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, 19 times out of 20.

Consumer confidence climbed to a two-year high last month as the housing market averted the sharp decline 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.

The confidence index has averaged 56.4 over the past 12 months, while the pocketbook measure has averaged 57.2.

The expectations index rose to 56.7 in the latest survey from 56.0. It has averaged 55.7 over the past 12 months.

Still Appropriate

The Bank of Canada said “uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment,” leaving the economy weaker than had been expected, according to a statement released last week. The document dropped a phrase from the last decision about the expected “gradual normalization” of monetary policy.

Central bank governor Stephen Poloz told reporters the current policy rate remains appropriate because it strikes an appropriate balance between the danger of excessive consumer spending and the risks of economic weakness.

Finance Minister Jim Flaherty will meet private-sector economists today to get their projections for economic growth ahead of an budget update he’ll probably present next month.

Flaherty said last week the government’s deficit fell as it cut operating expenses. The shortfall was C$18.9 billion in the fiscal year ended March 31, down 28 percent from the prior year and C$7.0 billion less than projected six months ago.

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