The global economic crisis appears to have pushed Canadian consumer confidence to its lowest level in almost two decades, but the malls may still be crowded during the holidays.
The Conference Board of Canada (CBoC) said Monday that its consumer confidence index fell 2.9 points this month to 71 per cent in a survey conducted between Nov. 6 and 13. The decline follows a massive 12-point plunge in October.
"It's now down to levels that we haven't seen except in the previous recessionary periods -- 1981 and '82, and 1990 and '91," CBoC Deputy Chief Economist Paul Darby told CTV's Mike Duffy Live.
According to the Ottawa-based think tank:
- Consumer sentiment in the prairies had its biggest one month fall on record.
- Confidence also dropped in British Columbia, Ontario and Quebec.
- Consumer confidence was up slightly in Atlantic Canada.
In an audio interview posted on the think tank's website, Darby said the numbers from Ontario and Quebec were not entirely surprising because of the negative impact the troubled auto and manufacturing industries are having in those provinces.
"A very interesting development is that confidence is also beginning to slide in the prairies. In fact, the biggest decline that we saw in the numbers took place out West," he said.
He said that declining commodities prices are "eating into confidence" in provinces such as Alberta.
Economic paradox
Interestingly, consumers said they believe that, despite the economic uncertainty, it may not be a bad time to make major purchases. Darby said that's probably reflective of low interest rates for homes and some good deals being offered by car dealerships.
Mel Fruitman, of the Consumers Association of Canada, said Canadians are still shopping - despite the grim economic outlook.
"The malls are busy and people are certainly buying," he told Mike Duffy Live.
"There seems to be quite a paradox here, in that consumer confidence is quite low yet people are out there shopping. I don't know what it is. Maybe just it's a false sense of bravado - 'Damn the torpedoes and full speed ahead.'"
He urged shoppers to be extremely cautious in what they choose to buy - especially big-ticket items.
"Take advantage of the sales, scoop up whatever you can. That helps the economy going," he said. "But maintain a balance between making those purchases and don't go further into debt. Don't be seduced by a low price on a big-screen TV if you weren't planning on buying one."
Darby said Canadians may still be shopping because the country hasn't seen the massive layoffs that are occurring south of the border.
"If you look at employment, we've continued to create jobs," he said. "Going into the Christmas shopping season, the incomes are still going to be there."
What should Ottawa do?
Jack Mintz, an economist with the University of Calgary, said the Canadian government could have a significant impact on helping the economy, but there are questions about exactly what it should do to restore confidence in consumers.
"They're potentially talking about perhaps some tax cuts," he said. "I would hope, though, that those tax cuts are going to be permanent in nature and not transitory.
"The U.S. rebate program that was done last year had very little effect in pumping up the economy. In fact, most people saved the money or used it to reduce some of their debt liabilities because they really didn't have a sustained increase in their permanent income, which translates into more consumption when they feel they have more money in their hands."
Liberal MP Ralph Goodale, a former finance minister, said income tax breaks would also drive up productivity.
"If you want to drive competition, if you want to drive productivity, then you have to bring down income taxes," he said.
He said the Conservative government has instead focused on lowering consumption taxes like the GST.
"The government has, in its fiscal policy, put virtually all of its eggs in that one tax-reduction basket," he said. "We would argue that was the wrong approach."
On Thursday, Finance Minister Jim Flaherty will present the government's fiscal update. He said this past weekend that Canada appears to be heading into a "technical recession," but on Monday said the country is doing far better than other major economies.
"The fact is we have a stimulus of almost two per cent of GDP already in the Canadian economy," he said in Toronto. "Fortunately we acted in advance. A lot of countries have had to play catch up on that stimulus."
Banking sector problems
The current global crisis continues to take its toll on the world's financial institutions, including Canada's chartered banks. On Monday, the Royal Bank said it expects its fourth quarter earnings to be down by about 15 per cent from a year ago. It posted $670 million in trading losses and writedowns.
"These are challenging times, with extreme volatility in the global financial markets and an uncertain outlook," Gord Nixon, RBC president and CEO, said in a statement early Monday morning.
"However, RBC continues to be in a strong financial position. We are focused on prudently managing our balance sheet, while continuing to provide our clients with excellent financial advice and service."
Last week, TD Bank and the Bank of Nova Scotia both warned that they would book fourth-quarter losses. TD said it expects a $350-million loss on its wholesale banking operations and Bank of Nova Scotia expected a $595-million hit.
In the U.S. this past weekend, Washington agreed to inject US$20 billion into Citigroup Inc. and back up more than $300 billion in loans to stabilize the faltering financial giant.
