Canadian Households Face a Difficult Economic Forecast for the Autumn.
Canadian households are expressing a markedly pessimistic outlook regarding the nation’s economic prospects as autumn approaches, driven largely by persistent inflation and elevated interest rates rather than a weakening labor market. A recent poll, shared exclusively with the Financial Post, reveals that the Canadian Household Outlook Index rose to 93 in September, up from 90 in August, though this positive directional shift reflects a generally subdued mood among consumers. The index’s elevation indicates a deep-seated concern over the economic climate, fueled by anxieties surrounding rising prices and the Bank of Canada’s aggressive interest rate hikes.
The poll reveals a significant shift in consumer sentiment. Approximately 65 per cent of respondents expressed a belief that the economy is currently on the “wrong track,” a figure that represents an increase from roughly 50 per cent observed a year earlier. This trend mirrors the global apprehension surrounding inflation, compounded by supply chain disruptions stemming from the pandemic and the ongoing impact of the war in Ukraine on commodity prices. John Wright, executive vice-president of Maru Public Opinion, emphasized the presence of a growing group of households already experiencing the financial squeeze, particularly among middle-aged and older individuals, who are grappling with rising interest rates or diminished investment returns – or a combination of both. Wright articulated this sentiment accurately: “There is also an apparent growing group who have felt the pocketbook squeeze since May (likely inflation led), but it’s been more particular in the households of those who are middle-aged and older, likely experiencing either the impact of rising interest rates or battered investments — or both.”
Despite the overall pessimism, several elements within the Household Outlook Index showed signs of stabilization. Roughly 35 per cent of respondents considered it “likely” the economy would improve over the next two months, an increase from 40 percent observed during the summer. This shift reflects a proactive strategy among many households to prepare for potential economic headwinds. A notable 66 per cent of respondents indicated they possessed sufficient savings—averaging over two months’ worth—to cover unexpected expenses or needs. This preparedness is a direct response to inflationary pressures and the possibility of economic slowdown. Furthermore, 62 percent expressed an intention to save more for retirement/old age security over the next two months, demonstrating a commitment to long-term financial stability in the face of economic uncertainty. Wright noted the “beauty of a multi-component index is that it can detect some silver linings in the black clouds.”He highlighted two key factors driving the slight index increase: “more Canadians intent on socking away some savings so they have more than two months of savings to cover unexpected costs or needs (maybe like provisions ahead of a major storm on the horizon), and a similar uptick in those who say they will put away more money for their retirement /old age security over the next two months.”
The Bank of Canada’s efforts to curb inflation, through three consecutive interest rate increases since March, appear to be contributing to this cautious approach. Governor Tiff Macklem has made it clear that the Bank’s priority is to prevent inflation from becoming unmoored from its two-percent objective, as uncontrolled inflation could necessitate further, potentially more substantial, interest rate hikes. As Macklem explained, “What we don’t want is … inflation and wages to become unmoored to our two-per-cent objective, because if that happens, then we are actually going to need to slow the economy a lot more to get the inflation back to two per cent.” This ‘front-loading’ strategy, designed to aggressively combat inflation, influences consumer sentiment, with households preparing for what they perceive as a potentially prolonged period of higher interest rates. The Household Outlook Index successfully captures this dynamic, revealing both caution and proactive financial planning.
