Consumer confidence is eroding and the worst may be yet to come!
In 2009, in the midst of the 2008-2009 recession, we surveyed the mood of consumers in the difficult socio-economic context to which they were forced to adapt. Since then, we have twice monitored several of the indicators used at that time, which we believe are particularly relevant this year in a context of inflation and rising interest rates.
This exercise reveals that consumer anxiety did not really abate significantly after the last recession and during the growth period of the 2010s. In fact, in 2023, it has now reached its highest point, even higher than during the last recession in 2009!
Thus, despite the economic recovery after 2010-2011, consumer confidence improved very little in the 2010s. Whereas during the 2009 recession, 64% of Canadians considered their financial position to be sound, this proportion rose to only 67% in 2015.
In 2023, in the current context of inflation and higher interest rates, this confidence has plunged 11 points, from 67% in 2015 to 56% this year.
This trend is also undoubtedly related to the continued rise in household debt. Official statistics keep telling us that Canada has one of the highest levels of household debt in the world!
As a result, the number of Canadians who consider their financial situation precarious fell from 36% in 2009 to 33% in 2015, but rose again to 44% in 2023. Canada is getting close to becoming a nation divided into two equal parts in terms of how people judge their financial situation!
It should also be noted that the full impact of rising interest rates has not yet worked its way through the system and that in the coming months/years, the situation could deteriorate further.
There are many households that have not yet renewed their mortgage at significantly higher interest rates than they initially took on.
Men, individuals 55 years of age and older and those with annual household incomes above $80,000 are significantly more confident about their financial future than women, younger individuals and those with lower incomes.
At the same time, in 2009, 51% of Canadians felt that their situation was likely to improve in the years to come. This proportion fell to 36% in 2015 and to 29% in 2023, a drop of 22 points since 2009.
A plurality (46%) still believe that their situation will not change, while those who believe that their situation will worsen rose from 11% in 2009 to 25% in 2023, an increase of 14 points over fifteen years – a rise of about one point per year!
The decline in consumer confidence and the rise in consumer debt levels are certainly factors contributing to the observed situation and the evolution of this trend.
But there's more going on here. This is also about trust in the world we live in. The complexity of life, the uncertainty of today's world, the decline in the feeling of control over one's life – issues that we have dealt with often in our texts – are being added to the mix to reduce people’s confidence in their personal ability to improve their lot.
It should be noted that the youngest cohort, those under 35, continue to be more confident in their ability to improve their situation in the coming years than the oldest cohort (55+). This is quite normal since, as people age, their living conditions tend to stabilize.
And unsurprisingly, the higher one’s income, the higher the confidence in the future.
In general, this attitude follows the same trend as the other indicators. Consumers who believe that now is a good time to buy what they want or need has hit an all-time low in 2023, compared to the situation measured during the last recession in 2009.
Slightly less than one in ten consumers (8%) consider it a good time to buy in 2023, down 11 points from 19% in 2009.
Instead, the increases are found among the consumers who believe that it is a bad time to buy (37%) and among those for whom it is neither a good nor a bad time (56%), up 7 and 6 points respectively since 2009 for these two attitudes.
Despite these results, which seem to indicate that many consumers are becoming cautious and budget-cutters, our studies of Canadians' strong enthusiasm for consumption indicate that, in the very short term, the decline in demand for goods and services in Canada should be only moderate.
Overall, a plurality of Canadians are still optimistic consumers. Optimists have confidence in the future, believe that their financial situation is sound, that their situation will continue to improve and strongly believe that it is the right time to buy what they want or need.
Optimists tend to comprise more men and consumers with a higher socio-economic status.
Optimists feel a strong sense of control over their lives and are confident in their ability to achieve their ambitions. They aspire to success and have a great need to be admired by their peers and society (pride).
These individuals are "neutral" on the different attitudes measured, except that they are a little more likely to consider their financial situation as “somewhat” precarious. They also tend to be between the ages of 25 and 44 with a family and children at home. They are struggling to make ends meet! Unfortunately, they are living with very high levels of stress. They feel disconnected and excluded from society and, like many people who feel this way, are socially very conservative (male/female relationships, view of the family, etc.).
These individuals tend to score as pessimists on all the attitudes measured.
They consider their financial situation to be precarious, do not believe that their situation will get better and think that it is the wrong time to buy what they need.
Pessimists comprise more women, individuals aged 45 to 54 and consumers who tend to have a lower socio-economic status than the Canadian average.
It is interesting to note that in terms of their personal values, they represent the quintessence of modernity. They believe deeply in gender equality and embrace all forms of diversity (social, ethnic, sexual, etc.).
On the other hand, they are very pessimistic about society and the environment. And their highly “apocalyptic” vision of the planet and society’s future seems to cloud their vision of their own personal future.
Consumer optimism is undoubtedly in decline, but it is the current context that has triggered the biggest deterioration. Conversely, pessimism now accounts for one in three consumers in Canada (34%), up 8 points since the last recession.
If bankers are any indication, the next few months/years are likely to be critical. Many households will have to renew their mortgage at much higher rates than they currently pay. Combined with high debt levels, the situation is likely to become very worrying for many and even catastrophic for some.
The personal bankruptcy rate is likely to jump significantly in the near future.
As the following chart shows, a plurality of consumers (45%) are already planning to reduce their spending in the coming months.
Predicting the future is often a mugs game, but the current socio-economic context combined with the financial situation of Canadian consumers does not bode well for the coming months/years.
Given all our data, we believe that many Canadians are in a “pre-recession” situation and mindset.
Let's hope we're wrong!