Rail Blockades Curbed Canadian Confidence Even Before Virus

(Bloomberg) -- Canadian consumer sentiment fell last month after nationwide protests disrupted rail traffic across the country and fueled worries about the nation's economy, even before financial markets were rattled by the spreading coronavirus.

The Bloomberg Nanos Canadian Confidence Index, a composite gauge based on weekly telephone polling, dropped in February to below historical averages on growing unease about the economic outlook. The drop wasn't dramatic, and sentiment remains above lows over the past year -- but the move reverses some of the gains recorded over the past couple of months. More concerning, the survey data have yet to fully capture the impact of last week's dive in financial markets amid concerns the coronavirus will undermine the global economic expansion.

Weakening confidence would be a bad sign for a Canadian economy that is running out of drivers of growth and has increasingly relied on household spending to produce even the modest gains the nation has recorded over the past six months. Sluggish confidence could prompt consumers to curtail purchases going forward -- a concern the Bank of Canada has been highlighting in recent weeks and one of the reasons why the central bank is expected to cut interest rates as soon as this week.

Every week, Nanos Research calls 250 Canadians for their views on personal finances, job security and their outlook for both the economy and real estate prices. Bloomberg publishes four-week rolling averages of the 1,000 telephone responses.

The aggregate index number fell to 55.8 in February, down from 56.4 at the end of January. The decline occurred in the final two weeks of the month. The composite index has averaged 56.5 over the past year, and 57 since 2013.

The decline in sentiment in February was largely confined to western Canada, with confidence in Quebec and Ontario little changed -- suggesting the rail disruptions were responsible for the weaker numbers. Demonstrations in several provinces by environmental and indigenous-rights activists had crippled freight and passenger traffic across Canada for more than two weeks last month.

The numbers show Canadians becoming less confident about the economic outlook. The share of Canadians who say the economy is expected to strengthen over the next six months has fallen to 13.5%, down from 15.6% at the end of January. That reading has averaged 15.1% over the past year and almost 20% historically. The percentage of respondents who expect a weakening outlook rose to 35.9%, the highest since April 2019.

The questions on personal finances and job security were little changed over the past month. Real estate sentiment actually gained in February, acting as an offset to worries about economic growth. The share of Canadians who see home prices rising increased to 48.4%, which is one of the highest readings on record in weekly data going back to 2013.

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary, Chris Fournier

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