Strong housing market explains unflagging consumer confidence

Crisis? What crisis? Canada is facing its highest unemployment levels in 11 years and bankruptcies are soaring, but that’s hardly put a dent in Canadian consumer confidence, which remains “remarkably resilient” despite the less-than-rosy economic news.

TNS Canadian Facts, a marketing and research group, said Thursday its measure of consumer confidence was holding firm in the high 90s for the third month, even while a separate report showed sentiment in the U.S. had fallen.

“In the face of a slew of negative news stories . . . consumer confidence has remained remarkably resilient,” said Michael Antecol, vice-president of TNS Canadian Facts. “Canadians are clearly not reacting the way some pundits would expect.”

While it seems to defy logic, Robert Kavcic, an economist at BMO Capital Markets, said it all goes back to one thing: the stunning recovery in the Canadian housing market.

“We have had a pretty remarkable increase in consumer confidence in the past four or five months, and that coincides precisely with a pretty sharp rebound in the Canadian housing market,” he said, referring to the 31.5-per-cent surge in secondquarter housing sales.
“Then you look at the U.S situation where house prices are still down, sales are not picking up, and the job losses are running at a much faster pace than in Canada, so it’s not surprising to see a difference.”

RBC Capital Markets reported Thursday that U.S. consumer confidence was sliding in July, continuing June’s decline.

In what may be a troubling sign for the months ahead, the main reason for the drop was that Americans’ expectations for any immediate economic turnaround had fallen dramatically.

In Canada, however, expectations fell only slightly, and the “buy index,” which measures Canadians’ attitudes toward making a major purchase, remained at its highest level since 2005, Antecol said, even though consumer bankruptcies jumped more than 34 per cent in May from a year earlier.

“[Consumers] still have one foot on the clutch and the other on the gas. ... They seem to be waiting for that defining event that will cause them to let out the clutch and put the economy into gear, even if it is only first [gear].”

(prepared by John Morrissy/Financial Post/Vancouver Sun)