‘Ugly’ Jobs Report Casts Cloud Over Canadian Confidence

An “ugly” end to the year for Canada’s job market is threatening to undermine consumer confidence that’s grown from the first quarter of 2013.

Sentiment rose to 59.2 for the week ended Jan. 10 from 58.8 a week before, according to the Bloomberg Nanos Canadian Confidence Index, compared with the 2013 low of 50.2 at the end of March, a month when employment dropped sharply.

The recent strength in consumer confidence may not hold up in the face of rising unemployment, said Joseph Brusuelas, senior economist with Bloomberg LP in New York. Canada’s unemployment rate unexpectedly rose from a five-year low in December as a net 45,900 workers lost their jobs, Statistics Canada reported last week.

The loss of well-paying jobs in industries such as construction is “indicative of the challenges policy makers face in attempting to slowly deflate the asset bubble that formed in urban residential and non-residential investment,” Brusuelas said.

Bank of Canada Governor Stephen Poloz said in an interview last month a rotation of demand from indebted consumers is taking longer than expected and predicted the world’s 11th biggest economy won’t reach full output for two years.

Following the Jan. 10 jobs report, traders increased their bets the Bank of Canada will cut interest rates by the end of the year, according to Bloomberg calculations based on overnight index swaps. Canada’s dollar dropped after the jobs release and has fallen 9.5 percent over the last year.

‘Decidedly Ugly’

The “decidedly ugly note” on which the job market ended the year raises questions about the “speed of the Bank’s hoped-for transition from housing to trade and investment-led growth,” CIBC World Markets economist Peter Buchanan said in a Jan. 10 research note.

Canada’s trade deficit widened to C$940 million ($860 million) in November, compared with the C$100-million median forecast in a Bloomberg News survey, Statistics Canada reported Jan. 7.

Optimism increased about personal finances, real estate and the country’s economic prospects last week, while measures of job security were little changed on balance, the report showed.

Regionally, consumer confidence improved last week in the country’s Atlantic provinces, Ontario and the Prairies, which includes Alberta, according to the Nanos report. Sentiment fell in Quebec and British Columbia.

“Year-over-year changes in consumer confidence in Canada remain positive but were largely driven by the economies of Ontario and the West,” said Nik Nanos, chairman of Ottawa-based polling firm Nanos Research Group.

Pocketbook, Expectations

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 rose to 60.3 from 59.9 last week. The Expectations Index increased to 58.1 from 57.7, according to the report.

The share of Canadians who say they’re better off financially over the last year rose to 21.4 percent from 20.2 percent the previous week. Those who say the Canadian economy will improve in the next six months increased to 23.0 percent from 21.8 percent.

The share of respondents who think the value of real estate in their neighborhood will increase over the next six months rose to 36.8 percent from 35.4 percent.

The Nanos data are based on phone interviews with 1,000 people, using a four-week rolling average of 250 respondents. The results are accurate within 3.1 percentage points.

The Bank of Canada’s business outlook survey today showed executives are waiting for signs of stronger demand before making major investments, while senior loan officers reported credit conditions eased slightly in the fourth quarter. The Teranet-National Bank Composite House Price Index will be published Jan. 14, while the Canadian Real Estate Association will release figures for existing-home sales on Jan. 15.

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