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Consumer Confidence is a Finicky Thing

Consumer confidence is one of those things in the economy that makes the whole ‘science’ of economics a crap shoot. Although you can measure interest rates, velocity of money, and so on, you can’t measure with certainty the temperature of the consumer. Since consumer buy the goods and services that drive the economy, it goes without saying that their contribution would be crucial. It is, but trying to figure out how to manipulate consumers to buy more is hit and miss. Case in point……

In Canada, consumer confidence in November fell to levels last seen in the last recession of the 1990s, according to a survey by the Conference Board of Canada. The board’s Index of Consumer Confidence fell a further 2.9 points to 71 in October after a 12-point crash the month before.

For the sixth time in seven months, the number of survey respondents expecting more jobs in their community dropped, the CBOC reported. Sentiment was down in all areas of Canada except in Atlantic Canada where the confidence index rose 0.2%. The biggest decline in sentiment came in the Prairies with a 7.4% decline.

However, Canada’s overall retail sales rose to $36.3 billion in September, up 1.1 per cent from August.

The figures, released Tuesday by Statistics Canada, show the strongest sales increase in eight months. But, it’s September, two months behind the confidence numbers. Yet, it’s also Christmas where there will be more spending, although less than previous years.

Prices are declining with the economic slowdown. Five of the eight sectors considered — automotive, food and beverage stores, pharmacies and personal care stores, clothing and accessories stores, and general merchandise stores — posted higher sales, accounting for roughly 75 per cent of retail sales.

Building and outdoor home supplies stores saw the biggest decline in sales, dropping 0.7 per cent from August to September.

Over in America it’s a different story. Surprisingly, consumer confidence rose in November largely due to receding gas prices, but Americans’ views on the economy remain poor as Americans grapple with massive layoffs, slumping home prices and dwindling retirement funds.

The Conference Board said its Consumer Confidence Index now stands at 44.9, up from a revised 38.8 in October. Last month’s reading was the lowest since the research group started tracking the index in 1967.

The Present Situation Index declined to 42.2 from 43.5 last month. The Expectations Index, which is consumers’ assessment of the economy over the next six months, increased to 46.7 from 35.7 in October.

Wall Street closely monitors sentiment as consumer spending represents about two-thirds of all economic activity.

Shoppers’ pessimistic mood is a big challenge for the nation’s stores, which are preparing for the official start of the holiday shopping season. The season already was expected to be the weakest in decades, but the spending outlook has darkened further since September as consumers have slammed on the brakes while grappling with the fallout from the escalating financial crisis. That includes rising layoffs across all sectors of the economy, and rapidly declining household wealth.

So although the economy is approaching all out bad news, you still get glimpses of hope. However, the data is usually too late to be accurate about the present, and also, inconclusive as to how spending habits will be dictated tomorrow. We can generally say that overall Christmas will be a slower time this year, but by how much it’s too hard and confusing to speculate.

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