Consumer Confidence: A Canadian Perspective

Q3 2012

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Allison notes that several factors are driving a desire and comfort with spending. In Canada, interest and unemployment rates are holding, while the year-over-year consumer inflation level is falling. In the most recent quarter, Canada’s modest inflation increase of 1.2% was more than offset by the 3.8% rise in hourly earnings.

As well, Canadian retailers continue to offer price cuts and promotions to win over consumers – and Canadians are taking advantage of the savings, says Allison.

He adds that the strong Canadian dollar, fluctuating around par with or higher than the American dollar, has increased the number of Canadians shopping south of the border in the U.S. (Shopping trips to the U.S. are up 29% in the past year.)

More optimism about spending and household finances, but debt concerns rise

Canadian consumer confidence shows signs of rebounding, reaching the highest level in more than a year.

In the Nielsen Global Consumer Confidence Index, Canada’s confidence level in the third quarter of 2012 jumped to 99 from 94 in the second quarter. That comes after four consecutive quarters of flat or declining confidence.

On the index, based on quarterly online surveys of consumers, a score of 100 is neutral. Levels above and below that show degrees of optimism and pessimism.

Canada showed one of the biggest improvements in confidence levels in the latest Nielsen survey; only seven countries (out of 58) had a bigger increase.

Nielsen Consumer Confidence Index Canada Global

Q3 2012 99 92

Q2 2012 94 91

Q1 2012 93 94

Q4 2011 96 89

Q3 2011 96 88

Q2 2011 101 89

Consumer confidence rose in more than half of the countries surveyed, 30 of the 58. Confidence remained the same in seven countries, and fell in 19. Overall, the global confidence level rose slightly from 91 to 92.

For Canada, the improving confidence level reflects a jump in positive feelings from consumers in two key areas. The Nielsen survey found that Canadians show:

•Greater buying intentions – 40% say it’s a good or excellent time to buy, up from 31% in the first quarter of the year.

•More optimism about their personal finances – 59% say their own finances are good or excellent, up from 55% and 54% in the previous two Nielsen surveys.

Carman Allison, director of consumer insights, Nielsen Canada, says some of the signs are pointing to Canadians opening their wallets more.

“Canadians are feeling more confident about their personal balance sheets,” says Allison. “Despite the threat of rising prices, the current level of inflation remains consumer friendly. That and a healthy employment market with continued job creation has increased consumers’ spending power.”

Buying Intentions Continue to Rise

How are the spending habits of Canadians changing? A year ago, in the third quarter of 2011, just one-third of Canadians felt positive about spending. That number hovered a little below and above that for the first half of the year. In Q3 of 2012, considering current costs and their personal finances, 40% of Canadians now say this is a good or excellent time to buy.

Is this a good or bad time to buy? Canada Q3 2012 Canada Q2 2012 Canada Q1 2012

Excellent 5% 2% 4%

Good 35% 32% 27%

Not good 45% 47% 52%

Bad 12% 17% 16%

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How do you rate your personal finances?

Canada Q3 2012

Excellent 7%

Good 52%

Not good 30%

Bad 6%

Yet another factor affecting confidence is the performance of the Canadian stock market, up 5% for the quarter. That created a more positive position for investments, and a more positive state of mind for Canadian consumers, says Allison.

Canadians are also more optimistic about their personal finances in general. Almost 6 in 10 Canadians (59%) rate their finances as good or excellent, a strong gain compared to the second quarter of the year.

More Spending… But Not Always Spending More

Although Canadians are feeling good about their finances and are more willing to spend, they aren’t necessarily ready to spend more.

Beyond cutting back in many areas, Allison says Canadian consumers have changed how they spend when they do in fact spend. An earlier Nielsen survey noted top saving activities like only buying items on sale (75% of consumers), using coupons (71%), stocking up during promotions (66%), and seeking stores with lower prices (62%).

Compared to this time last year, 59% of Canadians say they’ve changed their spending to save on household expenses. That’s down from the 63% who said the same in the last Nielsen survey. Here’s a look at the most frugal habits.

How are Canadians saving on household expenses

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How do you rate job prospects?

Canada Global

Excellent 3% 8%

Good 46% 37%

Not good 39% 36%

Bad 5% 15%

What do you do with your spare cash?

Out-of-home entertainment 21%

New clothes 21%

New technology products 14%

Home improvements/decorating 18%

Holidays/vacations 28%

Paying off debts/credit cards/loans 38%

Putting into savings 39%

Investing in shares of stock/mutual funds 10%

Retirement fund 13%

I have no spare cash 20%

High Debt and Increased Savings Restrain Spending

Consumers continue to show a reluctance to spend in ways that would spur a greater economic recovery.

“At the moment Canadians are primarily focused on their balance sheets – we have money to spend, but we’re being very cautious,” says Allison.

When Canadians were asked what they do with spare cash after covering essential living expenses, the biggest category was putting it into savings – 39% said so, up from 31% in the previous Nielsen survey. Just behind that as the top answer – 38% pay off credit cards, loans and other debts.

Reducing that debt is prudent. In October, Statistics Canada reported that the average household now has just 63 cents of disposable income for every dollar of debt. The ratio of debt- to-income of 163.4% is the highest ever recorded in Canada. In fact, it’s higher than the levels seen in the U.S. before that country’s housing market collapsed in the mid-2000s.

The reality is that the debt load of Canadians has tripled since 1980, says Allison; with that high load, the threat of rising interest rates makes consumers very vulnerable.

In October, the Bank of Canada again left its benchmark overnight interest rate target unchanged for a 25th consecutive month; that hasn’t been seen since the early 1950s. Yet the central bank has now warned for the first time that it could hike rates in an effort to deter consumers from piling on any additional debt.

Consumers are vulnerable in others ways; fully 20% of Canadians in the Nielsen survey say they have no spare cash, a number that has remained fairly constant.

Do you think your country is in an economic recession at the moment? (% answering yes) Canada Global

Q3 2012 49% 62%

Q2 2012 50% 57%

Q1 2012 52% 57%

Q4 2011 50% 64%

Q3 2011 44% 62%

Q2 2011 43% 58%

Economic and Job Views Stay Lukewarm

Despite positive economic indicators in some areas, Canadians haven’t really budged on a few key perceptions.

For one, is Canada still in a recession? Just about half of Canadians (49%) say yes, and the number of Canadians who feel this way hasn’t moved from a narrow band of 49-52% for a year now. Of those who believe we’re in a recession, just 1 in 7 (14%) think we’ll be out of it in a year.

The economy has been growing modestly, with Canada’s gross domestic product rising (annual rates) by 1.8% and 1.9% in the first and second quarters of 2012, with the forecast for the third quarter about the same. The Bank of Canada now says the economy will reach “full capacity” at the end of 2013, a less optimistic view than an earlier estimate.

Just as Canadians are divided down the middle on their views about a recession, the feeling about job prospects is also middling. Just under half of Canadians (49%) rate job prospects as good or excellent, the same as in the Q2 Nielsen survey.

The unemployment rate has in fact been relatively stable all year long, at about 7.2% or 7.3%. It went up to 7.4% in September, because even though 52,000 more Canadians were working that month – far more than economists expected – more than that number joined the labour force. The federal government reports that Canada has added 820,000 net new jobs since July 2009, when the economy started to recover from the recession.

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Here are Canadians’ biggest concerns over the next 6 months.

Top 7 Canadian concerns#1

Concern#2

ConcernTotal

Pt. Chg vs. Q2

Debt 17% 9% 26% +4

The economy 12% 12% 24% ±0

Increasing food prices 9% 15% 24% +8

Health 9% 9% 18% -6

Increasing utility bills 8% 10% 18% +1

Job security 11% 6% 17% -1

Increasing fuel prices 5% 11% 16% -4

Debt and Food Prices Jump on List of Concerns

The uncertainty that Canadian consumers have expressed is reflected in their list of top concerns. The specific issue of debt has replaced the economy in general as the main concern of Canadians. Food prices has also shot way up the list, from the seventh biggest concern in the second quarter (16%) to the third biggest concern now (24%).

“Women in particular are more concerned than men with factors affecting the household budget,” says Allison. “For Canadian women, food prices are actually the biggest worry at the moment and with women accounting for the majority of CPG purchase decisions, this new concern will impact the shopping basket.”

Have rising food prices changed the grocery habits of Canadians? While 15% say these prices have had no impact, 34% say they’ve had a small impact, and just over half of Canadians, 51%, say that food price hikes have had a major impact on their grocery purchases.

Will consumer confidence continue to rise in Canada for the remainder of 2012 and into 2013? Will spending become less cautious? While many indicators in the Q3 survey are positive, “We’re not out of the woods yet,” says Allison. “Consumers are still uncertain about the future.”

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About the Survey

The Nielsen Global Online Survey was conducted August 10 to September 7, 2012, and polled more than 29,000 consumers online in 58 countries throughout Asia Pacific, Europe, Latin America, the Middle East, Africa and North America. The sample has quotas based on age and sex for each country based on their Internet users, and is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60 percent Internet penetration or 10M online population for survey inclusion. The Nielsen Global Survey, which includes the Global Consumer Confidence and Spending Intentions Survey, was established in 2005.

About Nielsen

Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com.