Canada's Condominium Magazine

Consumers more positive about economy as holiday shopping season enters final week

Your country needs you—to spend. In 2016, consumer spending was up 2.2 per cent, says BMO, and conditions continue to be “favourable” for consumers. Employment is up, household net worth is up, owners’ equity in real estate is up, and consumer confidence is up. The fact that household indebtedness is also up is the only potential fly in the ointment, though BMO points out that the ratio of consumers’ debt to their net worth has declined. We owe more, but we’re worth more. This situation, in which low interest rates encourage consumers to keep the economy humming, is forecast to continue in 2017.

How do consumers feel about it? Pretty good, it turns out. The latest Conference Board of Canada index of consumer confidence was up 1.1 per cent in December, this after a six-point increase the previous month. The increase in Alberta was even higher: 5.8 points for a nineteen-month high. Many Ontario residents said that their household finances had improved over the last six months. There is also optimism in Ontario about job prospects. All of this bodes well for the holiday spending season, according to the Conference Board of Canada.

Real estate constitutes the largest share of most Canadians’ net worth, so it is significant that twice as many people are optimistic about housing prices continuing to rise in coming months as are pessimistic. The latest Bloomberg Nanos Canadian Confidence Index indicates that those polled expressed more positive sentiment about the national housing market by a ratio of 35.9 per cent to 17.3 per cent.

If you are a home owner, naturally you hope your home’s value will rise indefinitely. If you are not a home owner, those endlessly rising prices are your worst nightmare.

Another factor playing into the higher level of optimism is the announcement two weeks ago by Prime Minister Justin Trudeau that two major pipeline projects had been approved. That was enough to lift the consumer confidence index by more than four points. Rising oil prices have also boosted confidence, especially in Alberta.

But what about those high consumer debt levels that the Bank of Canada keeps harping on? Canadian households are the most indebted, by far, among the G7 countries. Addressing the issue last week in its bi-annual review of the financial system, the Bank of Canada said high consumer debt levels are a key vulnerability in the system, but explained that recent government steps to curtail mortgage borrowing would eventually have the intended effect.

Meanwhile, the low interest rates which prevail, by Bank of Canada policy, continue to make it possible for people to borrow more. Consumers, said the central bank’s governor, Stephen Poloz, should be all right as they carry their high debt loads, as long as the system does not receive a sudden sharp shock, like a major housing correction or interest rate spike. He repeated the oft-used metaphor comparing consumer debt to a cracked tree; it won’t topple over until the wrong kind of storm comes along. Once interest rates begin to “drift” higher, consumer spending will settle down, he predicts.

In the US, meanwhile, consumer confidence was also up sharply in December, rising from 93.8 to 98, based on a University of Michigan survey. Many respondents mentioned their expectations that new government policies under Donald Trump would strengthen the economy. If he fails to deliver, that confidence will quickly erode.

And speaking of consumer spending for the holiday season, what do Canadians consider to be the most precious gift they could give to family and friends? Yet another poll, this one from Ipsos for the charity World Vision, found that 62 per cent would give the gift of good health, far more than named financial or job-related gifts. (Since giving the gift of health is not within anyone’s power, do those 62 per cent now consider themselves off the hook?)

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