Consumer at the crossroads
From the HGO Merchandiser
Here’s an apparent contradiction. Furniture and home furnishings retailers have enjoyed solid growth over the five years between 2013 and 2017. Indeed, both store categories set new highs in 2017 although things slowed drastically during the first six months of 2018. But, here’s the thing: during that period only 29% of consumers, on average each month, believed now is a good time to purchase a big-ticket item, such as furniture, appliances, a house or a car.
This suggests 71% held the opposing view – now is not a good time to buy. That is the author’s conclusion after reviewing the data behind the Consumer Confidence Index, which is published monthly by the Conference Board of Canada, a private think-tank based in Ottawa. Indeed, after housing, consumer confidence has emerged as a key driver of furniture, mattress and major appliance sales.
In 2014, the board set the index to 100. Its determined by the answers Canadians give each month to the survey’s questions which revolve around the current and future (in six months’ time) state of household finances; employment and job prospects; and, major purchases. Between January 2014 and October 2018, the overall index averaged 105 each month, reaching its peak – 128.3 – in December 2017. What’s more, it has stayed about 110 since May 2017.
The peak for the major purchases question came in August 2017, when 33.1% of Canadians responding to the survey said now was a good time to buy. Except in February 2018, the index has been above 30 on this question since mid-2017.
But things are changing, according to, the Conference Board economist in charge of preparing the index who believes the Canadian consumer is facing new challenges as 2019 approaches.
“The Canadian consumer is at a crossroads,” he told Home Goods Online in an interview. “When interest rates were very low, consumers expanded their debt loads significantly which supported their overall spending. Interest rates have started to rise, which reduces people’s desire to take on debt while also increasing the amount they’re spending on their existing debt (mortgages, credit cards, loans, etc.). As a result, the Canadian consumer is on weaker footing than a year ago but remains in a good state overall thanks to the strong job market.”
Strong employment growth over the past two years has produced corresponding improvements in wages. The average weekly wage is expected to be $1,029 in 2020 – up from $922 in 2015. “As a result, household finances remain in a strong position,” Renner said.
Despite these positives Renner expects to see the Consumer Confidence Index because of the drag being created by rising debt levels and increasing rates.
“I expect to see the index decline to around 105 (it is 114.2 in November),” he told HGO. “Economic growth remains solid; job prospects are good and wage growth should improve from its recent deceleration – all supporting the index. However, debt loads remain a concern and are expected to dampen enthusiasm about household finances while rising interest rates will reduce demand for major purchases.”