Consumer confidence has increased in Canada vastly compared to last year, however CIBC World Markets Inc.’s new Consumer Capability Index finds that weak consumer fundamentals and an interest rate hike will have Canadians starting to apply a halt on spending.
In late 2008, we saw consumer confidence reach a 15 year low, as measured by the Conference Board’s Consumer Confidence Index has improved by 60%, and it is now back to it along term average, although it is still nearly 20% below its 2007 peak.
The increase in confidence saw more Canadians spending last quarter, with personal purchases climbing nearly 4% on an annualized basis.
The CIBC Consumer Capability Index is designed to measure the ability of Canadian consumers to spend as opposed to their willingness to do so.
What the index found is that a consumer was positively responded to the Bank of Canada’s monetary policy of low interest rates and is comfortable borrowing again. The downside is that it found a growing debt burden that is sensitive to any increase with the low rates we have today.
The report also found that the household debt to income ratio in Canada has continued to climb, and as of December 2009 it stood at a new all time record of 147%.
A reason this has happened is due to people taking advantage of low interest rates, and in most cases they are over extending themselves and increasing their debt.
With consumer spending standing to decrease with interest rate hikes, we have to prepare ourselves for the moment they do take effect and not lose any momentum we have gained.
Rita Baxter
Broker of Record with Town and Country Realty
www.lloydminsterrealestate.ca/
