MNI REALITY CHECK: BOC Data Suggests Consumers Still Upbeat

--MNI Calculations on Sentiment Questions Show Gains In Housing, Spending Plans

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - Canadian household confidence showed signs of resilience in

the fourth quarter, an MNI review of the Bank of Canada's debut consumer survey

found, contrasting with policymaker and analyst worries about a spending

downshift.

     MNI created a summary measure of the central bank's Survey of Consumer

Expectations by taking 13 of the questions and assigning them weights in an

index adding up to 100 points. The index moves between -100 if every response is

weaker than the previous quarter and +100 if they all improve. That calculation

shows overall confidence fell to -14 in the fourth quarter from +1 in the

previous three months, while still greater than -22 in Q2.

     BOC officials say the economy slowed late last year with signs of consumer

weakness and, after a period of resilience in the face of global trade tensions,

a rate cut is now on the table. Governor Stephen Poloz has said there is a

trade-off between any insurance rate cut that would stabilize the economy now

and the potentially larger cost down the road from adding to record consumer

debts.

     The BOC survey published Jan. 13 asked questions on incomes, jobs, home

prices and interest rates. MNI gave a higher weight to questions more closely

linked to income and shorter-term views on the economy.

     On that basis, the MNI summary measure with data back to the start of 2015

does move somewhat in tandem with quarterly GDP, in a period where business

spending was often disappointing in contrast to consumers. The summary index

fell to a low of -84 in the first quarter of 2016 as the economy was coming out

of an oil slump and the high was +90 in the following quarter. The summary has

averaged -5.6 since 2015.

     Fourth-quarter data showed negative readings on wages, spending growing

faster than incomes and home prices seen rising further. That mix suggests a

rate cut would feed the wrong part of Canada's economy. Toronto and Vancouver

housing prices are already heating up again even after governments imposed new

taxes and a mortgage stress test to combat unhealthy speculation.

     Consumer spending has been the workhorse of Canada's economy since the

global financial crisis a decade ago, aided by low interest rates and

unemployment before hiring slowed in the fourth quarter. Poloz said last month

one reason it's hard to assess recent household demand is difficulty tracking

online purchases made through U.S. websites.

     Investors get an update this Friday on consumer spending with December

retail sales from Statistics Canada. The MNI economist median suggests a 0.1%

increase and sales have been flat around CAD51 billion since March. The month

ends with fourth-quarter GDP, which the BOC says slipped to a 0.3% annualized

pace.

     The MNI summary calculations show that 2019 overall was less volatile than

recent years for consumer sentiment, ranging between -22 and +12. The most

extreme readings in each year from 2015 to 2018 were -50, +90, +64, and +62,

respectively.

     Below are tables of the questions MNI selected, the index weights and the

summary result for each quarter:

Question                                                MNI Weight (Index =100)

-------------------------------------------------------------------------------

Perceptions about current inflation                                           3

1Y-ahead inflation expectations                                               2

Expected wage growth, next 12M                                               11

Perceptions about wage growth, past 12M                                      11

Probability of losing job in the next 12M                                    13

Probability of leaving job voluntarily in the next 12M                        7

Probability of finding job in the next 3M                                     7

Expected income growth, next 12M                                             16

Expected spending growth, next 12M                                           17

Expected interest rates in 1Y                                                 3

Expected home price growth, Ontario                                           4

Expected home price growth, British Columbia                                  4

Expected home price growth, Canada                                            2

MNI Summary Measure  Quarter

----------------------------

-10                  Q1 2015

-43                  Q2 2015

-50                  Q3 2015

-16                  Q4 2015

-84                  Q1 2016

90                   Q2 2016

48                   Q3 2016

-19                  Q4 2016

0                    Q1 2017

2                    Q2 2017

64                   Q3 2017

-9                   Q4 2017

62                   Q1 2018

-26                  Q2 2018

-60                  Q3 2018

-38                  Q4 2018

12                   Q1 2019

-22                  Q2 2019

1                    Q3 2019

-14                  Q4 2019

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

--MNI Ottawa Bureau; +1 613 981-1671; email: anahita.alinejad.ext@marketnews.com

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