Consumer sentiment slightly improves, but still subdued: BoC survey

The Bank of Canada says consumers were less pessimistic about their finances as summer wound down but are still not upbeat about the situation.

The central bank's survey of consumer expectations released Friday (Oct. 11) found fewer Canadians predicted their finances will worsen over the next year. 

It attributed the improvement to lower inflation and recent cuts in the bank’s policy interest rate but indicated it hasn't been enough to really unleash spending.

"Most consumers expect to spend more on essential purchases and housing costs in the year ahead, while fewer anticipate increasing their spending on discretionary items, such as restaurant meals, entertainment and vacations," the survey said. 

Consumers told the bank they were reducing spending and putting off buying big-ticket items.

“You don't want to make as many of those big purchases just because you don't know how secure your job is. Anything could really change," one survey respondent told the bank. "Just saving more, less spending.”

READ: Canadians turn to sales, coupons as food affordability remains top concern

Compared with the previous quarter, fewer mortgage holders told the bank they expect their mortgage payments to increase significantly at renewal. Those expecting higher payments also feel assured that they will be able to handle rates when they renew their mortgage contracts.

Despite these improvements, more than half of consumers still expect a recession in the coming year and do not expect further rate cuts, Maria Solovieva, an economist with TD told clients in a note.

She also pointed out that consumer expectations of wage growth declined for the first time since the second quarter of 2023. 

Younger workers are experiencing a more pronounced deterioration in wage growth expectations, compared with other groups, she said.

An accompanying Bank of Canada survey of businesses found firms in the country also had a subdued outlook from July to September.

They reported muted inflationary pressures as demand weakened and price growth slowed, leaving firms with excess capacity.

"The tone and results of the Bank of Canada's quarterly survey of companies was dovish," Ali Jaffery of CIBC Economics said in a note to investors. 

"Respondents continued to report subdued expectations for future sales, little appetite to investment or add to head count, and inflation expectations now look increasingly anchored at the bank’s target."

Firms are waiting to see signs of improving demand, reduced uncertainty or cheaper financing costs before investing and many are finding discounts are needed to lure consumers into opening their wallets, he added.

Jaffery felt such findings from the survey point to "an economy clearly in need of rate relief," but said any moves from the central bank will likely hinge on the forthcoming inflation numbers. 

"For now, we continue to expect a 25 basis point cut on Oct. 23; but given the stronger-than-expected Labour Force Survey, the decision will boil down to next week’s inflation report," said Shelly Kaushik, an economist with BMO Capital Markets.

Statistics Canada's Labour Force Survey, released Friday, revealed that the economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5%.