Fearful consumers reining in spending

Oct 18, 2008 04:30 AM

Rita Trichur

Dana Flavelle

BUSINESS REPORTERS

Canadian consumer confidence took a nosedive this month, especially in Ontario, amid continuing economic uncertainty, sparking fears that shoppers are already reining in their spending.

Consumer confidence plunged to levels last seen in the 1982 recession, with Ontario posting a record-smashing one-month decline, the Conference Board of Canada said yesterday.

The findings suggest consumers are becoming especially leery about making big-ticket purchases such as appliances, cars and homes ahead of the all-important Christmas shopping season, which one analyst predicts could be the worst in 20 years.

"All we are hearing is doom and gloom and people seeking advice on how they may be able to protect themselves and save money," said Bruce Cran, spokesperson for the Consumers’ Association of Canada. "People are telling us that they are cutting back or postponing or cancelling big-ticket items, such as household appliances up to motor vehicles."

A growing number of consumers are seeing their vehicles repossessed, Cran said.

Perhaps most striking is the parallels some Canadians are starting to draw between America’s housing market meltdown and rapidly deflating home prices in this country.

Cran says he’s starting to get calls from worried consumers who believe the market value of their house has dropped below the value of their mortgage loan. He says he is not sure how widespread the problem is.

Far fewer mortgages in Canada - just 5 per cent - are in the so-called "subprime" category than in the U.S., where they make up 25 per cent of the market, according to a report by Standard & Poors’ credit rating agency yesterday.

Still, leading department store retailer Sears Canada Inc. said that it could see consumer confidence waning as early as late August and swiftly instituted a special "Budget Relief" price-cutting program that will remain until Christmas.

"We could see consumer confidence was shifting," Sears Canada spokesperson Vince Power said.

Ontario suffered the biggest slide, as consumer confidence "fell drastically" from 84.5 points in September to 67.9 in October, the province’s largest-ever monthly decrease, the conference board said.

Nationally, the index fell 11.9 points to 73.9, marking its lowest level "since the third quarter of 1982 - a time when the Canadian economy was mired in recession."

"The global credit crunch and major stock market declines clearly had an effect on consumer confidence in October," said Pedro Antunes, the board’s director of national and provincial forecast. "In addition, consumers felt that they would be worse off in six months, indicating concerns that the financial crisis would not be resolved quickly."

"Relative to September, consumers were feeling much gloomier about their current financial situation. This is likely due to the recent drops in global stock markets," the report said.

Only 16.6 per cent of respondents agreed their families were better off now than six months ago, a 4.7 point drop, while 17.2 per cent indicated that they were worse off, an increase of 2.5 percentage points.

Respondents are increasingly worried about future job prospects, the report found.

The survey was conducted between Oct. 2 and 8, shortly before Statistics Canada reported the economy had created a record 107,000 jobs, though many were part-time "low quality" jobs, economists and the Canadian Labour Congress noted.

The conference board says Canada will feel the knock-on effects of the global financial crisis but avoid a recession. Still, Canadian retailers have cause for concern, one analyst predicted this week.

The upcoming holiday retail sales season could be the worst in two decades, analyst Perry Caicco, at CIBC World Markets, wrote in a report to clients. "Fear of both job losses and reduced incomes are rapidly changing everyday consumer behaviour." Most retailers are in good shape, but few will escape unscathed and most will have to choose between protecting market share or profits, Caicco predicted, while some will choose to severely cut costs.

A few factors are working in retailers’ favour, particularly recent declines in the price of gas, which have put more money in consumers’ wallets, he noted. Regionally, Ontario is experiencing little or no retail sales growth, and Toronto, which had been holding up well, is expected to fare worse as regional manufacturing centres feel the brunt of declining U.S. demand.

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Market Restructuring

What is happening right now around the world is an inevitable breakdown and restructuring of a system that wasn’t working. All the major (read: wealthy) investors know this but for some strange reason business journalists don’t. The U.S. bailout is only going to prolong the pain, as a new system is inevitable. For now, between this situation, peak oil (which is still here, even with the slowdown) and climate change we’re all in for an interesting next decade. But when systems breakdown and re-emerge there are great opportunities to be had. Right now high-level investors are making a fortune on the volatility of the stock market. Instead of giving in to fear, why not educate yourself? The world’s economic system is breaking down. Governments are likely going to go bankrupt. The U.S. is printing paper money that has no real value (not based on Gold). Be prepared. Go forward with eyes open, look for opportunities and you’ll be fine.

Posted by fastfacts at 1:47 PM Saturday, October 18 2008

Keep Spending!

Geeze, people! The economy runs on the movement of money. If that movement slows, so does the economy. If the movement increases, so does the economy. Nothing (well, little) else matters. If we all continue spending, the economy will be fine. When an economist says "recession", we all stop spending money, and that causes a recession. Ignore negative economists -- they’re idiots. Jobs are being lost because spending has slowed. The mortgage crisis in the States needn’t affect us (or the banks much). The stock market has little effect on the economy -- it only affects RRSPs, and if they’ve dropped when you need them, borrow until they’ve come back up. Look people, it all comes down to you and I -- keep spending. Live your life as you normally would.

Posted by Rover’s Dad at 10:41 AM Saturday, October 18 2008

poppager - some vital facts you need to know

You assume that most people in Ontario make their living in the manufacturing sector when in fact, most do not. Just because somebody looses their $40/hr job at GM does not mean the only alternative is WalMart at $8/hr. There are retraining programs, apprenticeship programs and self employment. I think what you are actually referring to is the end of the line for lazy people who thought they could quit school after grade 11 and walk into a lifetime of over-paid union excesses. Yes, those days are done. For people willing to put at least a minimum of effort into self improvement, there is a world as rich as they want it to be waiting for them, when they are ready. For people willing to put in the effort, the rewards are virtually endless.

Posted by your uncle daddy at 10:12 AM Saturday, October 18 2008

Buying a car tomorrow.

Well, regardless of what everyone else is doing, tomorrow I’m taking my wife out to buy a car. She’s considering a Honda Fit, Toyota Matrix or a Mazda 3. Don’t see any big North American gas guzzler in there, do you? Message to GM, Chrysler and Ford...get with the program.

Posted by Roadrobber at 9:42 AM Saturday, October 18 2008

Gizmo wrote - High paid manufacturing jobs are done in Ontario

I agree with your analysis ... the high paid jobs have dreid up at least for the next few years. As we lose more and more of these jobs to the service sector jobs that pay minimum wage we are in deep trouble. Nobody will be able to afford all the over priced real estate, or buy the expensive cars, or those shiny new appliances. This will affect everyone including those in the higher income brackets. There will be lots of foreclosures, and no new buyers on mortgages. The consumer spending will drop as those that are not emplyed have no money to spend other than rent, utilities and possibly food. That is a sad but true fact. The more of those high paid factory workers out of work and no prospects .. the housing market will bottom out as well.

Posted by poppager at 9:31 AM Saturday, October 18 2008

Reining in spending

Well I started this reining a long time back and its paid off for me. All spare cash goes to reducing the mortgage principal, but I still continue to purchase units in my RRSP account twice a month regardless what happens to the markets. No big gifts or purchases for a long time to come with this enviroment.

Posted by 06Honda at 8:57 AM Saturday, October 18 2008

Some Comment

It seems that the economists are saying that people are afraid of losing their jobs. Well DAAh! What else can they expect? They have hearing and reading the news about the economic problems around the world for months if not years. They may have seen their jobs outsourced offshore but still had a job to go to. Now that doesn’t look so sure. It’s always the ordinary joe ends up feeling the brunt of the shenanigans that go on in the business world.

Posted by Hammer at 8:57 AM Saturday, October 18 2008

Dreaming...

Retailers are the ones in trouble. There are a lot of neccessities that will take precident over holiday spending. So every increase in these necessities are going hurt retailers and especially businesses in the entertainment industry. While gas might temporarily be down, energy has announced rate increases, water costs are going up, garbage removal fees are being added to these bills and property taxes are set to jump. This is the REAL economy killer. When you have privatized monopolies in the "neccessities of life" sector, they will dominate. On the other hand retailers will see less sales, they’ll order less stock from manufaturers and that’s going to hammer a lot of people in Ontario. Why Harper is giving away all our tax dollars to these energy companies, that don’t need it, doesn’t add up.

Posted by Greg R at 8:44 AM Saturday, October 18 2008

on the other hand

It has never been better to be a buyer. I am looking at trading from a 2006 Dodge Grand Caravan SXT to a new Jeep Wrangler ( with all options I can get ) and dealers are willing to do almost anything to move a new car off the lot. The same is true for a lot of items where the sellers recognize a buyers market and are willing to do anything to make a sale. So I think shopping for Christmas will be better value for the dollar than ever!

Posted by lankypaul at 8:41 AM Saturday, October 18 2008

Should be a warning to governments

People are afraid of the future due to the serious world economic downturn. With increasing numbers losing jobs people who are still employed are adjusting their "priorities" in spending. This economic downturn should be a warning for all levels of government to adjust their "priorities" in spending, as increased spending on unemployment and welfare is imminent.

Posted by Mrs. McWho at 8:38 AM Saturday, October 18 2008

consumer spending

Of course their pulling back everyone’s broke.

Posted by Misery at 8:36 AM Saturday, October 18 2008

Media needs to report surveys like this in a responsible manner

Of course confidence tanks when the stock market was collapsing and it was all over the media. This survey is a snapshot taken at the worst possible moment. And while it is obvious confidence is down, I think surveys like this create a worse picture than really exists and then that scenario becomes a self fulfilling prophecy because the media gives it so much attention. High paid manufacturing jobs are done in Ontario, and this is a tough thing some will have to adjust to, but we are a long way from facing the situation that exists in the USA. The media has much responsibility as to whether consumer confidence is good or bad and consumer confidence makes or breaks our economic well being.

Posted by gizmo at 8:36 AM Saturday, October 18 2008