OTTAWA — Canadian and U.S. consumers appear to be heading in opposite directions in terms of their confidence in the economy going forward — it’s up in Canada and down south of the border.
The Conference Board of Canada’s survey on consumer confidence in January shows the index rebounding strongly by 5.1 points to 83.1, the highest level since June 2011 and the first increase in four months.
Meanwhile, a similar survey by the Conference Board in the United States found confidence among consumers there plummeted this month to 58.6, the lowest level since November 2011.
The results are particularly baffling given that most economists believe the U.S. is on the verge of a relatively strong economic performance in 2013, while the expectations for Canada — while not negative — are more modest.
Bank of Montreal economist Doug Porter says the U.S. result is most surprising to him, noting there are specific reasons why Canadians should be seeing the sunny side of the economic street at the moment.
In Canada, financial markets have been positive in January, gas prices are down, jobs are being created and interest rates remain at rock-bottom.
“It’s not so obvious what’s going on in the U.S.,” he added. “I think what’s behind it is that consumers first had to deal with risks of the fiscal cliff difficulties and then they had to deal with the impact on their payrolls.”
The fiscal agreement is estimated to add about $700 in taxes to the average American households this year, says TD Bank economist Thomas Feltmate.
The U.S. also still faces the risk of another politically-induced crisis if the Democrats and Republicans don’t agree on extending the nation’s debt ceiling later this spring and a potential cut of $80 billion to government spending.
Feltmate says confidence could pick up quickly in the U.S. if employment conditions continue to strengthen.
“Moving forward, a continued rebound in home prices augurs for an improvement in consumer sentiment and spending,” he added.
Economists are divided on the importance of confidence surveys mostly because they tend to reflect perceptions of the economy that have already occurred, rather than what is about to occur. But some say declining confidence could also translate in lower spending by consumers, which has the effect of slowing down growth.
For Canada, the Conference Board said the improvement mainly reflected improved confidence in future jobs and future income.
When asked about the employment outlook in their community in the next six months, about one-fifth of respondents said they expected there would be more jobs.
That was an increase of nearly four percentage points from the December survey.
But economists are not nearly as sunny about jobs growth in 2013 as the respondents. Although the economy has created almost 100,000 new jobs in the past two months, the consensus view is that employers have gotten ahead of economic growth in recent hiring and will need to rein in future expansion.
Asked about their income in six months, nearly one-quarter of the respondents said they expected an improvement — up 1.4 percentage points from last month.
The index was based on a survey conducted from Jan. 4 to 14.