Canada Consumer Confidence Drops as Cheap Oil No Panacea

Canadian consumers concerned the immediate benefits of cheaper gasoline aren’t worth the cost to the wider economy pushed a sentiment gauge to a 10-month low.

The Bloomberg Nanos Canadian Confidence Index fell to 56.2 in the week ended Dec. 19, polling shows, the third straight drop and the lowest since Feb. 7. Views on the prospects for the world’s 11th-largest economy, which is also the Group of Seven’s largest crude-oil exporter, were the most subdued in a year.

The 46 percent drop since June in crude prices has prompted companies such as Husky Energy Inc. and MEG Energy Corp. to scale back investment. Plunging commodity prices led Finance Minister Joe Oliver last month to trim his 2015 surplus forecast. Lost oil revenue is another drag on an economy the central bank says already has significant slack and is still two years away from a full recovery.

Confidence in the prairie provinces including Alberta, site of Canada’s main oil-sands deposits, reached the lowest since June 2013. The percentage of survey respondents who said Canada’s economy will be weaker in six months rose to 29.9 percent last week from 26.4 percent, while those who said it will be stronger declined to 15.5 percent from 16.2 percent.

Home Sales

Retail sales and the housing market are already showing signs of frailty linked to concern over lower oil prices. Retail sales stalled in October, Statistics Canada said Dec. 19, and realtor data last week showed existing home sales were little changed in November including a 1.5 percent drop in Calgary, the country’s oil-industry hub.

The latest Bloomberg Nanos survey showed growing pessimism over home values. The percentage who said prices in their neighborhoods will be higher in six months fell to 34.7 percent, the most dismal reading this year, and those who said prices will be lower rose to 13.9 percent, the most since March.

Canadian home prices may be overvalued by as much as 30 percent, according to a Bank of Canada report this month. Lower oil prices could reduce economic growth by one-third of a percentage point next year, the central bank estimates.

Tomorrow brings the last reading on gross domestic product for the year. Economists predict Statistics Canada will report economic growth slowed to 0.1 percent in October from 0.4 percent in September.

Oil Dilemma

Households may fare worse from lower oil prices even as they stand to save C$300 ($258) on average next year from lower gasoline prices, Toronto-Dominion Bank economist Admir Kolaj wrote in a Dec. 19 research note. The decline in energy revenue “will also weigh on incomes and act as a headwind to consumer spending over the medium term,” Kolaj said.

The two main measures of the Bloomberg-Nanos survey went in different directions, as people were more confident in their own finances and less so in the future. The Expectations Index, based on responses about the outlook for real estate and the national economy, fell to 51.6 from 53.6, while the Pocketbook Index tied to job security and personal finances rose to 60.8 from 60.3 last week.

The Nanos index is derived from weekly polling 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.