Economic Confidence Stumbles As Fear Of Interest Rate Spike Spooks Consumers

Toronto, ON- It would appear that concerns about potential rising interest rates is dampening Canadians' confidence in the national economy. The Ipsos-Reid Canadian Monthly Economic Confidence Monitor, conducted in late May 2004, finds that the proportion of Canadians who describe the current economy as "good" has dropped to 66% from 74% at our last sounding in late February 2004. Moreover, the proportion that believe the national economy will "improve" over the next year has dropped from 34% to 27%, while the proportion who think it will "get worse" has increased to the same proportion (from 18% in February to 26% today). The aggregate index, provided exclusively to the Globe and Mail, has plummeted 9.97 points from 109.18 in February to 99.21 today. Since index tracking began in August 2002, a drop of this magnitude has only been witnessed twice, in November and March 2003.

The Canadian Economic Confidence Index, developed by Ipsos-Reid, functions as a predictor for consumer confidence in the Canadian economy. The aggregate index, or economic confidence outlook, contains six elements: one-year outlook for personal financial prospects; Canadians' job security; Canadians' home purchase intentions; Canadians' predictions for interest rates; spending intentions on big-ticket items; and spending intentions on everyday items.

As noted above, the decline in the index is largely a result of interest rate predictions, which have shifted from a positive factor to a negative one. Notably, except in the case of November 2003, it has been interest rate predictions that have been fuelling economic confidence.

The proportion of Canadians who are predicting an increase in interest rates has nearly doubled since February. Today 65% of Canadians think rates will go up in the next six months, compared to 36% who felt the same way in February. At that time 13% of Canadians believed rates would go down, whereas today just 4% believe this to be so.

Expectations about major purchases in the next year (25% likely to spend more than last year, compared to 28% in February) and day-to-day spending in the next year (32% likely to spend more than last year, compared to 29% in February) continue to soften economic confidence. While the magnitude has fluctuated to some degree, big-ticket and everyday spending expectations have had a negative impact on the index since its beginnings in August 2002.

Personal economic outlook is also dampening confidence at this time. The proportion of Canadians that feels their personal economic situation will "get worse" (20%) is encroaching on that which believes it will "improve" (33%). At our last sounding, 37% of Canadians felt their personal economic situation would "improve," while 13% felt it would "get worse."

Despite the gloomy news, positive home purchasing intentions (14% likely to buy) and low job anxiety (18% worried about job loss, compared to 21% in February) continue to give the Canadian Economic Confidence Index a strong push, as they have since Autumn 2003. These two factors have had a positive influence on the index since it began, except in June 2003 when home purchase intentions dampened optimism ever so slightly.

These are the findings of an Ipsos-Reid poll conducted from May 21st to May 24th, 2004. For the survey, a representative randomly selected sample of 1002 adult Canadians was interviewed by telephone. With a sample of this size, the results are considered accurate to within 177 3.1 percentage points, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled. The margin of error will be larger within regions and for other sub-groupings of the survey population. These data were weighted to ensure the sample's regional and age/sex composition reflects that of the actual Canadian population according to the 2001 Census data.

Two-Thirds (66%) Of Canadians Believe Current Economy Is Good, Down From 74% In February

Today, 66% of Canadians describe the current economy as good (63% "good," 3% "very good"), down from our last sounding in February 2004 (74%). One-third (32%) feels the current economy is poor (25% "poor," 7% "very poor"). The remaining 2% of Canadians "don't know" how they would describe the overall state of the Canadian economy right now. Until this current dip, the numbers had been relatively stable for a year.

• Residents of Alberta (77%) are the most likely to have positive impressions of the current Canadian economy, followed by residents of Ontario (71%), Saskatchewan/Manitoba (66%), and British Columbia (63%). Residents of Quebec (58%) and Atlantic Canada (61%) are less likely to describe the current economy as good. It is also those Canadians living in Atlantic Canada and Quebec whose opinions have most changed since February 2003 (down 21 and 17 percentage points respectively).

• Men (72%) continue to be more likely than women (61%) to think the current economy is good.

• Individuals with at least some postsecondary education (73%) continue to be more likely than Canadians with a high school diploma or less (52%) to describe the current economy as good.

• The propensity to describe the current economy as good continues to increase with level of annual household income (

Predictions For The Canadian Economy ...The Proportion Who Thinks It Will "Improve" Now Equals That Which Thinks It Will "Get Worse"

One in four (27%) Canadians think the economy will "improve" over the next year or so, a slight decline from February 2004 findings (34%). However, the same proportion (26%) think the national economy will "get worse," up from 18% in February. Just under half (45%) of Canadians think the economy will stay the same over the next year or so (47% in February), and 3% "don't know." Proximity such as this has not been witnessed since March 2003 when 26% of Canadians thought the economy would "improve" and 24% thought it would "get worse."

• Residents of British Columbia and Atlantic Canada are more likely to think the economy will "improve" (36% and 31% respectively), while residents of Ontario are more likely to think it will "get worse" (31%). Residents of Alberta, Saskatchewan/Manitoba, and Quebec are more likely to be split in the same manner as the country as a whole.

• Men (31%) continue to be more likely than women (24%) to think the Canadian economy will "improve" in the year to come.

• Individuals without a university degree (29%) are more likely than those with (18%) to think the economy will "get worse" over the next year.

• Canadians with an annual household income less than $30,000 (34%) are more likely than those with more (24%) to think the economy will "improve" over the next year. February's findings suggested the opposite (29% and 37% respectively).

The Canadian Economic Confidence Index Stumbles 9.97 Points To 99.21

The Ipsos-Reid Canadian Economic Confidence Index score for August 2002 is 100.00 because that was when it was first constructed; the chart below outlines how Canadians' economic outlooks has fluctuated since that time. Today's index of 99.21 suggests a decline in economic confidence, largely a result of pessimistic interest rate predictions.

Considering the individual attributes that comprise the index, or economic confidence, it is apparent that the major contributing factor to the decline in confidence is expectations that interest rates will go down in the next six months which has shifted to a negative factor (-6.7% weighted change). Interestingly, except in the case of November 2003, it has been interest rate predictions that have been fuelling economic confidence.

Expectations about big-ticket spending in the next year (-3.0% weighted change) and everyday purchase intentions (-1.9% weighted change) continue to dampen economic confidence. While the magnitude has fluctuated to some degree, big -ticket and everyday spending expectations have had a negative impact on the index since its beginnings in August 2002.

An expectation that one's personal economic situation will improve (-1.4% weighted change) has also switched back to a negative factor. Personal economic outlook has continually shifted back and forth since August 2002.

Positive home purchasing intentions (+6.8% weighted change) and low job anxiety (+5.4% weighted change) continue to give the Canadian Economic Confidence Index a strong push, as they have since Autumn 2003. These two factors have had a positive influence on the index since it began, except in June 2003 when home purchase intentions dampened optimism ever so slightly.

The Canadian Economic Confidence Index developed by Ipsos-Reid functions as a predictor for the Canadian economy. The index is based on the question: "Thinking about the next year or so, do you, yourself, generally feel that the Canadian economy will...improve, stay the same, or get worse?" The improvement of the economy is attributed to six elements: one-year outlook for personal financial prospects; Canadians' job security; Canadians' home purchase intentions; Canadians' predictions for interest rates; spending intentions on big-ticket items; and spending intentions on everyday items. These six attributes are then weighted for importance, which is based on the magnitude of difference between their assigned reward and penalty scores. % Expectations that own economic situation will improve makes up 16.6% of the index; Job security (% Yes) makes up 27.1% of the index; % Likely of purchasing a home in the next six months makes up 20.8% of the index; % Expectations about interest rates in the next six months (% will go down) makes up 12.9% of the index; % Expectations about major purchases in the next year (% spend more) makes up 12.8% of the index; and %Expectations about day-to-day spending in the next year (% spend more) makes up 9.8% of the index.

Two-Thirds (65%) Of Canadians Think Interest Rates Will Go Up In The Next Six Months, Up From 36% In February

Today 65% of Canadians believe interest rates will "go up" in the next six months, nearly twice as many as found in February (36%). One-quarter (27%) believes rates will "remain unchanged," a sharp decline from the 48% who thought so in February. Just 4% think rates will "go down" compared to 13% in February. The remaining 5% "don't know" what will come of interest rates in the next six months. The net score--the percentage who rates will "go down" minus the percentage who feel they will "go up"--is -61 (down from -23 in February). Today's net score is the lowest score since tracking began in August 2002, on par with March 2003 (-60).

• Residents of British Columbia (71%) are most likely to predict an increase in interest rates in the next six months, closely followed by residents of Ontario (67%), Alberta (66%), and Saskatchewan/Manitoba (64%). Residents of Quebec (59%) and Atlantic Canada (59%) are slightly less likely to think so. The change in opinion since February 2004 is fairly stable across the regions (up 28-34 percentage points) except in the case of Atlantic Canada (up 17 percentage points).

• The propensity to think interest rates will go up increases with annual level of household income (

Big-Ticket Spending Intentions Remain Stable...Three In Ten (31%) Expect To Spend Less Than Last Year, One-Quarter (25%) Plan To Spend More

Today, three in ten (31%) Canadians expect to spend less on big-ticket items in such as a car, household appliances, or vacations the next year than they did last year, unchanged from February (29%). One-quarter (25%) plan to spend more on major purchases than they did last year, virtually unchanged from February 2004 (28%). Slightly more than four in ten (44%) expect to spend about the same amount, unchanged from February (44%). Therefore, the net score--the percentage that intends to spend "more than last year" minus the percentage that intends to spend "less than last year"--is -6, a slight dip from -1 in February.

• Considering regional net spending scores, residents of Saskatchewan/Manitoba (-12) are most likely to expect to be cutting back on big-ticket purchases closely followed by residents of Atlantic Canada (-10), British Columbia (-10), Ontario (-7), Alberta (-4), and Quebec (-2).

• Canadians between the age 18 and 34 (35%) continue to be more likely than their elders (21%) to expect to be spending more on major purchases in the next year. Canadians 35 and older (34%) are more likely than those who are younger (25%) to expect to be spending less than last year.

Day-To-Day Spending Intentions Unchanged...32% Expect To Spend More Than Last Year, 16% Plan To Spend Less

Three in ten (32%) Canadians expect to spend more on things such as groceries, clothing or other personal goods and services than last year, virtually unchanged from February 2004 (29%), while one in six (16%) plan to spend less, also unchanged from our last sounding (13%). Half (51%) intend to spend about the same amount, down slightly from 58% in February. The remaining 1% "doesn't know." The net score--the percentage that intends to spend "more than last year" minus the percentage that intends to spend "less than last year"--is +16, unchanged from February.

• Considering regional net spending scores, residents of Atlantic Canada (+22) are most likely to expect to spend more on day-to-day items in the next year than they did the year before, closely followed by residents of Alberta (+19), Saskatchewan/Manitoba (+19), Quebec (+15), Ontario (+14), and British Columbia (+12).

Personal Economic Outlook...The Proportion That Feels Their Situation Will "Get Worse" (20%) Is Encroaching On That Which Believes It Will "Improve" (33%)

One-third (33%) of Canadians think their personal economic situation will "improve," virtually unchanged from February 2004 (37%). Two in ten (20%) think it will "get worse," up from 13% in February. The remaining 46% think their personal economic situation will "stay the same" (49% in February). The net score--the percentage that feels it will "improve" minus the percentage that feels it will "get worse"--is +13 (down from +24 in February). This is the lowest net score witnessed since March 2001.

• Personal economic outlook is consistent across the regions.

• Canadians 18-34 years of age (54%) continue to be more likely than those 35-54 (28%) and 55 and older (18%) to think their personal economic situation will "improve," while Canadians 55 and older (56%) are more likely than those 35-54 (45%) and 18-34 years of age (36%) to think it will "stay the same." Canadians 35-54 years of age (25%) also continue to be more likely than younger adults (10%) to think their situation will "get worse."

• Men (37%) continue to be more likely than women (29%) to think their personal economic situation will "improve."

Home Purchase Intentions Remain Positive...14%Of Canadians Likely To Buy At This Time

One in seven (14%) Canadians are likely to purchase a new or another home at this time (5% "very likely," 8% "somewhat likely"). These findings have remained virtually unchanged since the question was first asked of Canadians in August of 2002. Today, 16% of Canadians say they are "not very likely" to buy a home at this time and seven in ten (70%) say they are "not likely at all."

• Home purchase intentions are consistent across the regions.

• Canadians between the ages of 18 and 34 (21%) continue to be the most likely to be purchasing a home right now, followed by Canadians aged 35-54 (14%), and finally Canadians 55 years of age or older (8%).

Canadian Job Anxiety Remains Low...18% Worried About Job Loss

Two in ten (18%) Canadians are worried about either themselves or someone in their household losing their job, virtually unchanged from February 2004 (21%). Eight in ten (81%) are not worried. Job anxiety was at its highest in September 1993 (35%) and at its lowest in February (16%) and April (16%) of 2003.

• Residents of Alberta (89%) are the least likely to be worried about losing their job or someone in their household losing their job, followed by residents of Quebec (83%), Ontario (82%), Atlantic Canada (81%), and Saskatchewan/Manitoba (81%). Residents of British Columbia (74%) are less likely than others to say "no" they are not worried about losing their job or someone in their household losing their job.

• Canadians 55 years and older (90%) are less likely to be worried than those 18-54 years of age (79%) about losing their job or someone in their household losing their job.

Please open the attached PDF to view the embedded tables, factum and detailed tables.

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For more information on this news release, please contact:

John Wright
Senior Vice-President
Ipsos-Reid Public Affairs
(416) 324-2900