Canada Consumer Confidence Drops as Dollar Weakens

Canadian consumer confidence dropped for the second straight reading as optimism about the economy waned during a week where the nation’s currency depreciated to the lowest in more than four years.

The Bloomberg Nanos Canadian Confidence Index fell to 57.6 from 58.7 the previous week. Consumers grew more pessimistic about their personal finances, the national economy and job security, survey data show.

The Canadian dollar depreciated to the lowest in 4 1/2 years against its U.S. counterpart on Jan. 22 after the Bank of Canada kept its benchmark interest rate unchanged and said the strength of the currency is hurting exporters. Confidence in Ontario, the most populous province and home to much of Canada’s manufacturing base, fell to 57.2 from 59.5.

“Confidence in Ontario will have to be closely monitored in terms of a new emerging negative trend,” said Nik Nanos, chairman of Ottawa-based polling firm Nanos Research Group.

Canada’s economy, once the envy of developed countries following the global recession, is struggling to gain momentum as households deal with record debts and governments try to eliminate budget deficits. Bank of Canada Governor Stephen Poloz reiterated last week that a pickup in exports and business investment has taken longer than expected to appear.

Poloz also said the risk of inflation remaining below the midpoint of the central bank’s 1 percent to 3 percent target band has increased. Canada’s inflation rate rose 1.2 percent in December from a year earlier, slower than the 1.3 percent that economists had forecast, Statistics Canada reported Jan. 24.

‘Appropriate’ Policy

The central bank’s policies, which have led to a 6 percent drop in the Canadian dollar over the past three months through last week, have been appropriate, Prime Minister Stephen Harper said in a Jan. 16 interview.

“We have every reason to have confidence that the Bank of Canada has appropriate monetary policies in place,” Harper said, while predicting that Canada’s economy will strengthen this year.

On Jan. 31, Statistics Canada will report figures on economic growth for November. Economists are expecting gross domestic product to grow 0.2 percent on a monthly basis, according to the median estimate of 17 economists surveyed by Bloomberg through Jan. 24.

Canada’s currency traded at an average of almost parity with the U.S. dollar in the two years before Poloz became governor, leading to “competitive challenges,” according to the central bank. In December, Battle Creek, Michigan-based Kellogg Co. closed a plant in London, Ontario, firing 500 workers who produced Corn Flakes and All-Bran cereals.

Direction of Growth

“The direction of Canadian growth depends on an acceleration of demand from the U.S.,” said Joseph Brusuelas, senior economist with Bloomberg LP in New York. The sluggish domestic economy and household indebtedness are depressing consumer confidence, he said.

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 declined last week to 59.1 from 59.6. The Expectations Index dropped to 56.2 from 57.8, the data show.

The share of Canadians who say they’re better off financially over the last year fell to 19.6 from 20.3 percent the previous week. Those who say the Canadian economy will improve in the next six months decreased to 22.5 percent from 23.8 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.

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