MNI POLICY: Canada Q1 Consumer Sentiment Shaky on Wages, Jobs

Canadian household confidence was shaky in the first quarter on a mix of major gains in spending plans and nervousness about wages and job security, while inflation expectations remained subdued, according to an MNI analysis of Bank of Canada data.

The MNI summary measure of the Bank of Canada's household survey data was -10 compared with +60 in the fourth quarter. Six of 13 components in the summary measure showed improvement this time, down from nine in the previous analysis.

MNI created the summary measure by assigning weights to questions tied to future spending decisions in an index adding up to 100 points. That means the index would move between -100 if every response is weaker than the previous quarter or to +100 if they all improved. MNI gives higher weights to questions more closely linked to consumer spending and to shorter-term views on the economy and doesn't weight the magnitude of the swings.

One significant source of weakness was the consumer view of inflation a year from now. That measure slumped to to 2.1%, the lowest since the third quarter of 2017, from 2.86% in the last report. The BOC sets interest rates to meet a 2% inflation target.

SLUGGISH WAGE GAINS

There were also signs of continued weakness in the labor market, with small declines in already low views of wages. Consumers said wage growth over the last 12 months was 1.02%, and over the next year they saw wages climbing 1.94%.

While respondents on balance saw the probability of losing a job in the next year climbing to 15.5% from 15.1%, there was a much bigger rise in people who saw themselves voluntarily moving to another job, to 15.5% from 10.6%.

There was also a large jump in consumer spending growth plans suggesting the overall picture is rosier. Household spending growth of 4.6% is the highest in data back to 2014, and up from 2.8% in the fourth quarter.

"Despite concerns about the virus, confidence around spending has increased," the BOC's report said. "Households expect the economic recovery to be slow and the threat of COVID-19 to diminish no earlier than in the second half of 2021." The survey was taken Feb. 15 to March 4, a time of reports on vaccine delays and also when health lockdowns were somewhat eased.