Consumer Confidence: A Canadian Perspective

Q1 2012

Copyright © 2012 The Nielsen Company. 32 Copyright © 2012 The Nielsen Company.

Economic Concerns Remain High, as Canada Lags Behind Rising Global Confidence

While consumer confidence is rising globally, Canadians are increasingly gloomy regarding their finances and the overall state of the economy.

The Nielsen Global Consumer Confidence Index, for the first quarter of 2012, reveals that Canadians surveyed are out of step with the sunnier outlook found in many parts of the world. On the index, based on quarterly online surveys of consumers, a score of 100 is neutral; levels above and below that show degrees of optimism and pessimism.

The Canadian confidence number slipped from 96 to 93 in the latest results, the lowest level in almost three years. Meanwhile, the global confidence level shot up five index points to 94. In the U.S., the confidence level rebounded by nine points to 92 – just behind Canada – the highest level there since before the recession.

“We’ve been flying high compared to other countries since the recession,” says Carman Allison, director of consumer insights, Nielsen. “Now the rest of the world is catching up, and reality is coming to the forefront.”

A look at the last four Nielsen surveys shows how Canadian and global consumer confidence levels are diverging.

Nielsen Consumer Confidence Index Canada Global

Q1 2012 93 94

Q4 2011 96 89

Q3 2011 96 88

Q2 2011 101 89

Do you think your country is in an economic recession at the moment?

(% answering yes) Canada Global

Q1 2012 52% 57%

Q4 2011 50% 64%

Q3 2011 44% 62%

Q2 2011 43% 58%

Of the 56 countries surveyed by Nielsen, 38 reported increased confidence levels, and two saw no change. Just 16 countries had declining confidence levels (12 of those in Europe), including Canada.

“This is shaping up to be another year where the consumer will be cautious,” observes Allison. “2012 will be a tough year, with static or low growth for CPG.”

More Than Half Say We’re in a Recession

The perception that Canada remains in an economic downturn continues to grow, even as global concerns about the economy ease somewhat. Over the past year, more and more Canadians say that we’re in a recession – over half of the people asked in the latest Nielsen survey. In contrast, a growing number of respondents around the world state that their country is emerging from a recession.

Of the half of Canadians surveyed who believe that we’re still in a recession, only 18% say we’ll be out of it in another year.

The Conference Board of Canada predicts that Canada’s economy will expand by 2.3% this year and 2.8% in 2013, and blames modest growth in household spending as well as fiscal restraint by all levels of government. The International Monetary Fund (IMF) has even lower economic growth estimates for Canada – 2.1% this year and 2.2% in 2013, although both are an upgrade from IMF’s predictions in January of 1.7% and 2% growth.

The IMF reports that the economic recovery in Canada is well advanced – but at the same time cautions that Canada faces “significant” downside risks, including high household debt, a potentially vulnerable housing market, and a weaker recovery in the U.S. The IMF also predicts that unemployment in Canada will remain largely unchanged in the next two years.

Copyright © 2012 The Nielsen Company. 32 Copyright © 2012 The Nielsen Company.

Once you’ve covered essential living expenses, what do you do with spare cash?

Canada Q4 2011

Canada Q1 2012

Paying off debts/credit cards/loans 41% 36%

Putting into savings 32% 34%

Holidays/vacations 26% 26%

New clothes 22% 24%

Out-of-home entertainment 21% 22%

I have no spare cash 21% 21%

Home improvements/decorating 18% 18%

New technology products 12% 17%

Retirement fund 12% 14%

Investing in shares of stock/mutual funds 9% 9%

Is this a good or bad time to buy? Canada Q4 2011

Canada Q1 2012

Excellent 4% 4%

Good 34% 27%

Not good 43% 52%

Bad 17% 16%

Buying Intentions Fall…

With the combined impact of belt tightening and inflation, it’s no surprise that Canadians are less enthusiastic about spending. Considering costs today and their personal finances, just 31% of Canadians say this is a good or excellent time to buy, a drop from 38% in the previous Nielsen survey, and down almost 10 percentage points from 40% one year ago at the beginning of 2011.

…And New Saving Habits Stay Ingrained

When Canadians are spending, they continue to look for more and new ways to save. Compared to this time last year, 62% of Canadians say they’ve changed their spending to save on household expenses.

With inflation passing wage increases in 2011, Allison expects the thrifty habits to last. “Every time we turn around, we’re being asked to pay more and more, resulting in less money in consumers’ wallet. People are very conscious of trying to reduce their spending.”

As Allison explains, increases in consumer spending are being driven by rising prices, not by increased consumption.

While global respondents have also sought ways to cut back, Canadians are much more frugal in many categories. Here are the top 10 ways that Canadians are looking to save.

Little Spare Cash for Discretionary Spending

One factor that puts the brakes on a full recovery, as the IMF suggests, is the level of household debt. Bank of Canada Governor Mark Carney has gone so far as to call that “our greatest domestic risk”.

The ratio of debt to personal disposable income is 150.6%, near an all-time high. That shows how overstretched Canadians are, owing $1.50 for every dollar they earn. When Nielsen asked Canadians what they’re doing with their spare cash, one-in-five (21%) replied “I have no spare cash”.

Allison says the lack of spare cash is alarming, and points out that with the high debt levels Canadians are at great risk if interest rates should rise. The current low interest rates can also encourage some Canadians to borrow beyond their means, says Carney.

On the positive side, as Nielsen found, Canadians are trying to get their financial house in order. The two biggest categories where spare cash goes – paying off debt (36%) and putting it into savings (34%). That translates, however, into fairly flat discretionary spending.

How are you saving on household expenses? Canada Q1 2012

Global Q1 2012

Spend less on new clothes 51% 51%

Cut down on out-of-home entertainment 55% 47%

Try to save on gas and electricity 48% 47%

Switch to cheaper grocery brands 50% 39%

Cut down on take-away meals 56% 39%

Cut down on holidays/short breaks 30% 31%

Cut down on telephone expenses 27% 31%

Delay the replacement of major household items

27% 30%

Use my car less often 37% 27%

Cut down on at-home entertainment 29% 25%

Copyright © 2012 The Nielsen Company. 54 Copyright © 2012 The Nielsen Company.

What is your biggest concern over the next 6 months? #1 Concern #2 Concern Total

Debt 16% 9% 25%

The economy 14% 10% 24%

Health 12% 12% 24%

Increasing utility bills (electricity, gas, heating)

6% 13% 19%

Increasing food prices 6% 12% 18%

Job security 12% 5% 17%

Middling Prospects for Jobs and Personal Finances

What do Canadians think about job prospects in the country over the next 12 months? Depending on how you look at it, the glass is either half full or half empty. 48% say good or excellent, 48% say bad or not good – the same split as in Nielsen’s last survey, and down six percentage points in six months.

How do you rate job prospects?

CanadaQ4 2011

CanadaQ1 2012

Excellent 6% 5%Good 42% 43%Not good 42% 43%Bad 6% 5%

How do you rate your personal finances?

CanadaQ4 2011

CanadaQ1 2012

Excellent 6% 5%Good 51% 49%Not good 32% 36%Bad 7% 8%

Debt is Top Concern

Economic issues, led by debt, continue to dominate the list of concerns for Canadians.

With debt such a major worry, Allison has little expectation that consumption will rise much if at all during 2012. If there’s any reason for confidence, he points to the somewhat more optimist economic views in the U.S. Will the rising U.S. tide raise all ships?

“So much is riding on the U.S. recovery,” says Allison. “They’re the world’s largest economy and our largest trading partner. We need them to start spending again. Once they do, it will potentially benefit Canada as well.”

As Allison notes, employment is actually up, yet so is pessimism about jobs. In March 2012, the unemployment rate was 7.2%, down from 7.7% in March 2011, and just about where it was (7.3%) in January 2009.

While Canada has recovered all the jobs lost during the 2008-09 recession, the Conference Board doesn’t expect the labour market to return to full employment for another four years, i.e. to an unemployment rate that’s down to about 6%.

Canadians have the same tepid attitude towards their personal finances as they do about jobs. 54% of Canadians rate their finances as good or excellent, 44% as bad or not good – a negative view that’s up 3 points in the last six months says Nielsen.

Allison says that the consumer isn’t alone, as debt and balancing of the books continues to plague all levels of governments – and that means higher taxes, user fees or fewer services hitting the consumer wallet.

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About the Survey

The Nielsen Global Online Survey was conducted between February 10-27, 2012 and polled more than 31,000 consumers in 56 countries throughout Asia Pacific, Europe, Latin America, the Middle East, Africa and North America. The sample has quotas based on age and sex for each country based on their Internet users, and is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60 percent Internet penetration or 10M online population for survey inclusion. The Nielsen Global Online Survey, which includes the Global Online Consumer Confidence Survey, was established in 2005.

About Nielsen

Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com.