Canadian consumer confidence doubles: Poll

(January 9, 2003) A majority of Canadians see the economic good times continuing through 2003. That’s a marked difference from gloomy attitudes last year, according to a poll by Pollara.

The survey, conducted for the Economic Club of Toronto, shows that 56% of Canadians think the economy will get better over the next 12 months. That’s up from 28% in December 2001. The survey polled 1,677 Canadians in late November and early December, 2002.

Canadians “appear to have totally recovered from the clouds of economic pessimism and despair they suffered from in the post-September 11 period,” says Michael Marzolini, chairman and CEO of Pollara. In that period, he says, Canadians feared job security was fragile and increased personal spending was risky. They also feared that tax cuts would be halted and that the budget would fall into deficit.

Instead, a growing number of Canadians think their income will at least keep pace with inflation, and perhaps even exceed it. They are less concerned about losing their jobs than they were, and as a result don’t feel the need to curtail spending or delay major purchases, such as appliances or houses.

“This is very positive news,” says Mark Adler, chairman of the Economic Club of Toronto. “It supports the general notion of a slow, modest recovery during 2003, led by consumer growth.”

Higher consumer confidence also places significant expectations on government that seem to contrast with U.S. attitudes. “With our new attitude of economic optimism, tax cuts and debt reduction are back on the agenda, ” Marzolini says, “but at the same time so is increased spending.”

Health care and the military are the areas Canadians have identified as spending priorities. According to Pollara’s survey, Canadians want $48 out every $100 in budget surpluses to go to these areas. They want $29 to go to debt reduction, and $23 to tax cuts. Yesterday, the Conference Board of Canada forecast an $8.7 billion federal surplus for the 2002-2003 fiscal year, and $11.2 billion for the next fiscal year.

The Pollara survey was released today at a meeting hosted by the Economic Club of Toronto that featured senior economists from Canada’s big five banks. Their forecasts of the rate of economic growth in 2003 ranged from a high of 3.8% put forward by Tim O’Neill of BMO Financial to a low of 3% shared by many of the other economists. The U.S. economy is expected to lag, and that could be a factor in limiting Canada’s economic expansion.

“We may have the same flight pattern as the U.S., but we’re flying at a higher altitude,” O’Neill says. “We were not as aggressive in buying equities or making capital investments.” A cheap Canadian dollar also boosted exports. O’Neill thinks the current fiscal and monetary stimulus in the U.S. will benefit the Canadian economy.

TD’s Don Drummond thinks economic growth will more likely straddle 3%, barring a sudden surge in the U.S. economy. He argues that the Canadian economy is close to full capacity utilization. And while consumers may be willing to spend, he sees no pent-up demand. “If people were desperate to buy a house and hadn’t done it, or if people were desperate to buy a car and hadn’t done it,” Drummond says. “I would argue, if anything, it’s the opposite. People have been pulling their purchases forward and I think those markets are going to settle down.”

The economists were much more pessimistic about the U.S., where substantial improvement has to come from business investment, rather than a “shopped-out” consumer. Until that business investment translates into job growth, consumer demand will remain flat. While Canada will most likely face interest rate increases by the second half of the year, thanks to growing levels of employment, “I think the surprise in the U.S. will be how long this low interest rate environment is with us,” says CIBC’s Avery Shenfeld.

Filed by Scot Blythe, Advisor.ca, sblythe@advisor.ca.

(01/09/03)