Canada's Housing Bubble

Dec 21, 2010 ottawacitizen.com

Ottawa — Consumer confidence is apparently one of the few areas of the economy unaffected by the economic recovery.

According to a report released Tuesday, confidence levels now are virtually unchanged from those in December 2009.

The Conference Board of Canada said its consumer confidence index dropped 2.6 points in December to 81 after two straight increases. Confidence levels have slid in seven months of 2010.

"Pessimism was concentrated in Central Canada, as lower index values in Quebec and Ontario outweighed the large upward movement in British Columbia," said report author Todd Crawford, noting that confidence levels in the Atlantic provinces and the Prairies remained relatively unchanged.

BMO Capital Markets economist Robert Kavcic said the drop "leaves confidence wedged about equally between pre-recession levels, and those seen at the depths of the financial crisis."

The Conference Board's report came on the same day as Statistics Canada reported the inflation rate slowing more than expected in November, with the core inflation rate — which strips out volatile consumer items — easing to 1.4 per cent, despite an overall increase in consumer prices.

Also on Tuesday, the federal agency reported retail sales rose 0.8 per cent in October, though when gas station sales are excluded sales were actually down 0.1 per cent in the month.

"Canadian consumer spending growth has slowed significantly from earlier in the year, but should continue to support economic growth through 2011 — the employment backdrop, equity markets and interest rates (despite the debt warnings) remain favourable," Kavcic said.

The Conference Board's survey is the second in two days to report a drop in consumer confidence. Marketing research company TNS Canada said Monday that its confidence measure in December fell, wiping out a small gain in November.

The Conference Board's survey asks consumers about their confidence in their future finances, their current financial situation, their future employment situation, and whether they think now is the time to make a major purchase.

Crawford notes that overall opinion fell on three of the four survey questions, with future finances and major purchases showing the biggest decreases. The employment question was the only one where positive responses outweighed negative.

"Results on the major purchase question continue to prove worrisome," Crawford said. "When asked if they feel that this is a good time to make a major purchase, just 38.5 per cent of respondents answered positively, down 2.7 points." The number of respondents who said it was a bad time for big spending rose for a seventh consecutive month, he said.

"At 49.6 per cent, the share of Canadians who now consider it a bad time to make a major purchase has reached its highest level since April 2009."