Stronger oil prices and brighter prospects for a Nafta deal have put the brakes on a three-month slide in Canadian consumer confidence.
Prices for oil -- a key Canadian export -- jumped to their highest in three years this month, helping the Canadian dollar rebound from its recent slump. Also bolstering confidence have been the steady progress toward a renewed North American Free Trade Agreement, signals from the Bank of Canada it’s in no rush to raise interest rates further and indications the country’s biggest housing markets are stabilizing.
“Many Canadians are transfixed by both the Nafta talks and the price of oil,” said Nik Nanos, chairman of Nanos Research Group. “Consumer confidence has followed a roller coaster ride along both of those fronts.”
Consumer confidence suffered a sharp drop off between January and March from near record highs at the end of last year as the nation’s economy was battered by headwinds including higher interest rates and concern about the housing market. It was one of the largest reversals for the confidence index since Nanos began weekly tracking in 2013, and came as a surprise given the strength of the nation’s labor market over the past year.
Yet, despite strong job gains, the economy has entered a slow patch. The Bank of Canada estimated growth in the first quarter was 1.3 percent, the slowest since 2016 and the third-straight quarter of sub-2 percent growth.
Most economists expect the economy to return to above-2 percent growth for the rest of the year, a process that should be helped by higher income from rising energy prices and a pick up in investment.
Oil prices in April surged to levels last seen in 2014 and is up almost 10 percent over the past two months, while negotiations to come up with a Nafta deal -- which have been a drag on business spending plans -- are intensifying and an agreement in principle could be reached as early as next month.
The Bloomberg Nanos Canadian Confidence Index is based on a four-week rolling average of 1,000 telephone responses to questions about personal finances, job security, the outlook for the economy and real estate prices. The survey has a margin of error of 3.1 percentage points.
The index ended April at 57.9, up from 56.8 in March but still below the average of the past 12 months. It touched 62.2 at the end of December, close to a record. When compared to year-earlier levels, the index has declined for three straight months -- something that hasn’t happened since early 2016.
Yet, sentiment appears to be stabilizing. The percentage of Canadians giving the most pessimistic responses fell to 18 percent, down from 19.1 percent in March. While still up from 14.2 percent at the end of 2017, it’s closer to historical averages. The share of Canadians giving the most optimistic responses was up slightly to 32.5 percent, from 32 percent in March. It reached a record 37.4 percent in December.
Regionally, Alberta and other prairie provinces recorded the biggest increases in sentiment, reflecting the improved outlook for oil. Quebec continues to post the highest confidence levels in the country.