Morning Market Brief: July 10, 2024

Soft Canadian consumer confidence persists

Canadian consumer confidence remains relatively muted despite the recent rate cut from the Bank of Canada (BoC). While consumer activity had been robust since coming out of the pandemic, that strength has lost momentum in recent quarters as households grapple with elevated inflation and high borrowing costs. These factors appear to be taking a bite out of consumer sentiment, weighing on spending activity. 

• The Bloomberg Nanos Canadian Confidence Index was 52.8 over the week ended July 5. This is down from the 53.2 reading in the previous week. The index has moved between a range of 50.0 and 54.0 over 2024, below the long-term average and all-time high reached in 2021.
• Consumers are feeling the pinch from tight financial conditions. In response to elevated inflation, the BoC raised interest rates quickly. While this has helped pull down inflation, economic growth and the labour market have slowed, weighing on Canadian households.
• With sentiment relatively low and ongoing concerns about the health of Canada’s economy, households have pulled back on spending.
• The July 5 report showed fewer Canadians are confident Canada’s economy will be stronger in the next six months. Furthermore, consumers are concerned about the strength of the real estate market.
• In more signs of the pressure being felt by Canadian households, a recent CIBC poll showed many Canadians are searching for ways to save money on their summer plans this year. Households are seeking ways to properly manage their spending on dining out, entertainment and clothing this summer.

Relatively muted consumer confidence has weighed on spending decisions in 2024, which has slowed economic growth. Persistently tight financial conditions are negatively impacting Canadian households and businesses. The BoC is hoping that lower borrowing costs, combined with moderating inflation, could help ease the pressure on households and reignite spending and economic activity.

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