Prairie residents express consumer confidence

National consumer confidence ended the year 2009 on a stronger footing compared to pre-recession levels, despite having edged down slightly in the fourth quarter compared to the third quarter.  

According to the Conference Board of Canada’s Index of Consumer Confidence, confidence eased slightly in the fourth quarter for the first time in three quarterly periods.  The decrease in confidence reflects weakening sentiment about making major purchases.  

But in the Prairie region, consumer sentiment improved for the third consecutive quarter in the fourth quarter of 2009, returning to the pre-recession level recorded in the second quarter of 2008. Sentiment about making major purchases, such as a home or a car, improved for the fourth consecutive quarter. The balance of sentiment about making major purchases has stayed positive for two consecutive quarters, returning to levels on par with the third quarter of 2007.

More Prairie region survey respondents said it was a good time to buy a big-ticket item, such as a home or car, than said it was a bad time to do so. Opinion about job growth has stayed positive for three consecutive quarters, and is also back on par with pre-recession levels. Sentiment about the outlook for household budgets edged down only marginally in the fourth quarter of 2009 compared to the previous quarter.

Consumer confidence in British Columbia eased slightly in the fourth quarter of 2009, according to the index. Moderating confidence in the fourth quarter reflects softening sentiment about households’ budgetary outlooks, job prospects, and major purchases.

Sentiment about making a major purchase, such as a home or a car, fell sharply and again turned negative in the fourth quarter.  It had turned positive in the third quarter for the first time in two years.

The balance of sentiment about households’ budgetary outlook stayed upbeat for the third consecutive quarter.

Bank of Canada maintains interest rates

As was widely expected, the Bank of Canada held its benchmark overnight lending rate steady at 0.25 per cent at its setting on December 8, 2009. The trend-setting bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 0.5 per cent.

The bank acknowledged that global economic developments have been slightly more positive, and that the global outlook had improved modestly since its October announcement, but noted “significant fragilities remain.”

As the bank predicted in October, recent growth in Canada has been coming more from the domestic side and less from exports, the result of the persistent strength in the Canadian dollar. On balance, this shift resulted in weaker than expected growth in the third quarter.

The bank noted that the risks to the inflation outlook remain unchanged from those outlined in the October Monetary Policy Report. Inflation could climb faster if global and domestic demand ends up being stronger than currently expected. By contrast, inflationary pressures would be held in check by a more protracted global recovery and persistent strength in the Canadian dollar. While the bank said it judged these risks to be roughly balanced, it noted that, since it cannot lower rates any further, the overall risk to the projection are tilted slightly to the downside.

The bank said inflation would return to the two per cent target by the second half of 2011. However, in its October announcement, the bank had said inflation was projected to get back to two per cent by the third quarter of 2011. This subtle change hints at the possibility that the bank could leave rates unchanged even longer than expected, and may be intended to quiet speculation that the bank would hike rates before its repeated pledge of July 2010 at the earliest. The bank’s commitment to keep interest rates on hold until the second half of next year is conditional on the outlook for inflation.

“Repeating its concern voiced in October, the bank reiterated the risk that the strong Canadian dollar poses to economic growth,” said CREA chief economist Gregory Klump. “They also opened the door to keeping interest rates on hold longer than expected. Low interest rates are likely to continue to fuel home price increases.” 

As of December 8, the advertised five-year conventional mortgage rate stood at 5.59 per cent. This is down 1.36 per cent from one year earlier, and stands 0.25 per cent below where it stood when the bank made its previous interest rate announcement on October 20.

Improving credit market conditions have enabled lenders to reintroduce discounts off posted mortgage interest rates. Discounts of up to a percentage point can be negotiated, depending on the lender-client relationship.