Canada Consumer Sentiment Falls to 8-Month Low on Outlook

Consumer sentiment in Canada fell to the lowest since May on speculation the nation’s economic outlook is worsening.

The Bloomberg Nanos Canadian Confidence Index declined to 56.0 in the week ending Feb. 7 from a previous reading of 56.6, the fourth straight drop. Deteriorating optimism was seen in every province except Quebec and across all age groups except the youngest, 18 to 29, and those older than 60.

Persistently low inflation, a widening trade deficit and the worst-performing currency in the Group of 10 this year are chipping away at the perception Canada is immune from the global downturn. Bank of Canada Senior Deputy Governor Tiff Macklem, speaking last week in Montreal, cited slack in the nation’s economy, retail competition and anemic worldwide prices for food and energy as among reasons for inflation remaining below the central bank’s target.

“Consumer confidence continues to slide largely on pessimistic views on the future strength of the Canadian economy,” said Nik Nanos, chairman of Ottawa-based polling firm Nanos Research Group. The year “has opened with dampened confidence.”

Abandon Plan

Finance Minister Jim Flaherty reiterated last week he will outline plans to reach a surplus in two years that could be almost C$4 billion ($3.6 billion) when he presents his 2014-15 budget tomorrow. The International Monetary Fund said Feb. 3 Flaherty could abandon that plan if economic growth remains sluggish.

“The federal budget represents a key signal to Canadians in terms of what they could expect for 2014,” Nanos said. “Messaging related to the budget and government finances can have a dampening or encouraging effect on consumer sentiment.”

Consumers are the most pessimistic since May about the nation’s prospects. The share of survey respondents who say the economy will improve in the next six months fell to 18.0 percent from 19.9 percent, while the share of those who anticipate a weakening rose to 28.4 percent, from 28.1.

Data showing a softening housing market is fueling speculation real estate has ceased to be a catalyst for economic growth. The total value of purchases in six major Canadian real estate markets rose 19 percent to C$5.09 billion in January compared with the same month a year earlier, and the number of homes sold rose 7.3 percent, according to data compiled by Bloomberg News from regional real estate boards. In both cases, that’s less than half the annual pace in December.

Home Values

Canadian housing starts were 180,248 at a seasonally adjusted annual pace in January, Ottawa-based Canada Mortgage & Housing Corp. said today. Economists forecast a reading of 185,000 according to the median of 18 responses to a Bloomberg News survey. The nation’s statistics agency reported last week building permits unexpectedly declined in December.

The proportion of survey respondents who think home values in their neighborhood will rise over the next six months fell to 36.3 percent last week from 38.1 percent, the largest drop in seven weeks.

The Canadian dollar is down 3.7 percent versus the greenback this year through Feb. 7, the worst performance among G-10 currencies, data compiled by Bloomberg show. The loonie, as the currency is sometimes known, depreciated past C$1.12 last month for the first time since July 2009 on speculation the Bank of Canada may lower interest rates.

“Household sentiment continues to slide on concerns over the deceleration in growth and the reduced purchasing power of the loonie,” said Joseph Brusuelas, senior economist in New York at Bloomberg LP.

Ontario, Prairies

Confidence in Ontario dropped to 54.5 last week, the lowest since May, while sentiment in the prairie provinces, which include Alberta, declined for a second week to 63.0.

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 responses on the outlook for the economy and real-estate prices.

The Pocketbook Index dropped last week to 58.5 percent from 58.9, while the Expectations Index fell to 53.5 percent from 54.4, the lowest since the end of April.

The share of Canadians who say they’re better off financially over the last year slid to 17.3 from 18.6 percent the previous week.

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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