Canadians’ economic optimism rose to the highest level in more than two years as inflation hit the central bank’s 2 per cent target and gas prices fell.
The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, rose to 55.39 last week, the highest reading since May 2022 and the biggest weekly jump in a couple years. A reading above 50 indicates net positive sentiment.
About 24 per cent of respondents expect the economy to improve over the next six months, the highest proportion since March 2022, when the Bank of Canada started its aggressive interest rate hiking campaign. Just over a third of respondents expect the economy to be weaker over the next half year, the lowest proportion since October 2021.
The data suggest slowing inflation and the promise of falling interest rates are improving Canadians’ optimism. Consumers may see the central bank’s rate cuts as meant to stimulate economic growth and preserve a soft landing – rather than to prevent any impending recession.
Canadians’ views on the economy also tend to be closely tied to real estate expectations, as about two-thirds of residents own homes. Currently, 45.2 per cent of respondents say home prices will go up in their neighbourhoods, which is five points above average and represents a significant rebound from two years ago.
People are also feeling increasingly safe about their employment prospects – 51 per cent describe their job as secure, the highest proportion since February of this year.
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Last week, Statistics Canada reported yearly inflation hit the Bank of Canada’s 2 per cent target, marking the weakest price pressures since the start of 2021. Gas prices led the deceleration – prices at the pump are down about US$0.18 per litre since April.
While unemployment is rising, it’s concentrated among young people and newcomers and there’s not yet evidence of widespread job cuts. Relative to the US, Canadians are also sitting on a higher level of savings.
Still, people report unhappiness about their personal finances. About 45 per cent of survey respondents report being worse off financially compared with a year ago, nearly 15 percentage points higher than average. This group started ballooning in 2021 and peaked at 52 per cent last September, but sentiment remains close to the worst on record.
The Bank of Canada has already cut interest rates from 5 per cent in June to 4.25 per cent earlier this month and have signalled more to come. Officials next set rates on Oct. 23, when they’ll also release updated forecasts in a monetary policy report.
Traders in overnight swaps have upped their bets for a larger-than-normal reduction at that meeting. Markets place the odds of a 50 basis-point cut at about 50 per cent.
Since 2008, Nanos Research has surveyed 250 Canadians weekly for their views on personal finances, job security, the economy and real estate prices. Bloomberg publishes four-week rolling averages of the 1,000 telephone responses. BLOOMBERG
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