2014
06/28

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Finance

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Canada Consumer Confidence Falls on Finance Worries

Canadian consumer confidence fell
for a third week, as optimism about personal finances dimmed to
the lowest in almost a year.

The Bloomberg Nanos Canadian Confidence Index fell to 58.5
through June 20 from 58.7 the week before. The percentage of
respondents who said their personal finances had improved over
the past year fell to 17.0, the lowest since August.

Consumers are being pinched by increases in the costs of
gasoline, food and electricity this year, pushing inflation to a
two-year high. Crude oil costs have jumped because of fighting
in Iraq that has created concern about future supplies.

The slide in consumer confidence is “primarily related to
the state of personal finances,” said Nik Nanos, chairman of
Nanos Research Group. That gauge “is currently scraping a 12-month low and is also below the six-year average,” he said.

Consumer prices advanced 2.3 percent in May from a year
ago, the fastest pace since February 2012, Statistics Canada
reported June 20. Energy costs advanced at an annual 8.4 pace
for a second month.

The US, the world’s largest economy and consumer of about
three quarters of Canada’s exports, is starting to move “on the
road to reasonably solid recovery,” Finance Minister Joe Oliver
said in an interview with Bloomberg Television in London. Oliver
said he expects his country’s inflation rate to be around the 2
percent target set by the Bank of Canada.

Job Security

The survey-based Nanos index has two sub-indexes. The
Pocketbook Index, based on responses to questions about personal
finances and job security, fell to 58.9 last week from 59.3 in
the last survey, the lowest since the beginning of February. The
percentage of respondents who said they are “not at all
secure” in their jobs rose to a three-month high of 8.2
percent, from 7.4 percent the week before.

The Expectations Index rose slightly to 58.2. The share of
Canadians who expect the value of real estate to fall in their
neighborhood over the next six months climbed to 12.2 percent
last week from 11.1 percent, with the third straight increase
bringing the reading to its highest since the start of April.
Nineteen percent of people said the economy will be weaker over
the next six months, down from 19.2 percent the week before.

Bank of Canada Governor Stephen Poloz said June 12 that the
biggest domestic risk to the country’s financial system remains
households with stretched consumer finances after a period of
rapid homebuilding. Poloz also predicted a soft landing in the
housing market and progress in Europe’s effort to ease its debt
crisis.

Debt Perils

Other reports last week suggested that consumers are
heeding the message about the perils of debt while they continue
to spend. Statistics Canada said retail sales rose 1.1 percent
in April led by automobiles, the fourth straight increase. The
agency also reported the ratio of household debt to disposable
income fell in the first three months of 2014, the second
straight quarterly decline from last year’s record. Mortgage
borrowing increased at the slowest pace in five years.

“The resilience of Canadian consumers is impressive, more
so considering that elevated gas prices are squeezing household
budgets,” Krishen Rangasamy, senior economist at National Bank
Financial in Montreal, wrote in a client note.

Consumer sentiment may continue to decline as inflation
rises, said Joseph Brusuelas, senior economist at Bloomberg LP,
even with “Poloz’s insistence that the price rise is primarily
due to temporary factors.”

To contact the reporter on this story:
Greg Quinn in Ottawa at
gquinn1@bloomberg.net

To contact the editors responsible for this story:
Paul Badertscher at
pbadertscher@bloomberg.net
Chris Fournier

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