Consumer confidence is tumbling across Canada as recession looms

Consumer spending accounts for about half of all economic output in Canada, TD Economics says.
Consumer spending accounts for about half of all economic output in Canada, TD Economics says. Credit/Canadian Press

Turmoil in stock markets and a renewed slide in oil prices dented confidence among consumers in all regions of the country this month, new survey data shows.

A monthly index produced by the Conference Board of Canada shows consumers’ optimism about the health of the economy falling several points in August compared to July.

The index from the not-for-profit researcher was published on Monday – a day before a widely anticipated data release from Statistics Canada that is expected to show the economy has entered a technical recession.

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“Consumer confidence deteriorated in every region this month,” the Conference Board said. The Index of Consumer Confidence fell 6.7 points, the second monthly decline in a row.

The survey, conducted between Aug. 3 and Aug. 12 asked respondents about their current and future financial positions, as well as about future job prospects and appetite to make major purchases.

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Responses for all four questions showed declining optimism.

Experts note confidence among households is one of the most important drivers of the economy – consumer spending is responsible for about half of Canada’s economic output now, TD Economics said in an Aug. 21 research note.

Alberta drop

The drop was most pronounced in Alberta, home to much of the country’s oil industry and where the economic slowdown is hitting hardest. Consumer confidence plunged 10 points and now sits a full 50 points below where the province’s index reading was a year ago.

The index dropped 5.7 points in Saskatchewan and Manitoba, while British Columbia recorded a 4.7 point decline.

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Further east, where a lower loonie and corresponding industrial rebound is supposed to be lifting economic prospects for households in central Canada, consumer sentiment isn’t showing it yet.

Ontario posted a 7-point decline from the previous month, while Quebec showed a 2.1-point decline. The index dropped 10.6 points among respondents from Atlantic Canada provinces.

Recession watch

Statistics Canada is scheduled to release June numbers on economic growth Tuesday, providing a look back at the damage low oil prices inflicted in the early summer.

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The data will almost certainly confirm what economists have been saying for the past few months – Canada has fallen into a technical recession, which is defined as back-to-back quarters of declining economic output. Growth has fallen or remained flat for five consecutive months and six of the past seven.

Still, many experts suggest the June reading – which is expected to show a modest return to growth in the month – will represent the start of rebound in the economy in the back half of the year.

The June numbers “should break the run of five straight monthly contractions,” Robert Kavcic, an economist at Bank of Montreal, said.

“Consumer spending is expected to accelerate, residential construction is growing, while net exports should add to growth,” Kavcic said.

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