Consumer expectations for the third quarter of 2024 are mixed. On the positive side, expectations for inflation have eased, while financial stress indicators have improved, driven by recent interest rate cuts and lower inflation, leading fewer consumers to report cutting back on spending.
However, expectations for continued elevated interest rates are impacting consumers’ spending plans. Perceptions of the labour market have weakened, with expectations for wage growth falling for the first time since mid-2023. This deterioration is most pronounced among young consumers, although overall job prospects remain near survey averages.
These findings come from the Bank of Canada’s third-quarter 2024 Canadian Survey of Consumer Expectations, which provides insights into shifting economic perceptions, especially regarding inflation, financial stress, and the labour market. These insights are valuable for understanding how broader economic conditions may influence trends in the real estate market.
Inflation Expectations and Economic Sentiment
Consumers are starting to feel more optimistic about inflation, with perceptions of current inflation and expectations for the next year both declining, though they remain above pre-pandemic levels. Expectations for inflation two years from now have significantly dropped and are now back to pre-pandemic levels. However, short-term inflation expectations, especially for services like rent and restaurant meals, remain elevated, while expectations for goods, such as food and gasoline, eased only slightly.
Despite these improvements, there is still a wide variation in consumer views on inflation. While a growing percentage expect inflation to fall within the Bank of Canada’s 1% to 3% target range over the next year, there are still many who remain concerned that strong government spending and high housing costs will continue to contribute to inflationary pressures.
Financial Stress and Spending Adjustments
Overall financial stress has eased compared to the previous quarter. The most notable change is among mortgage holders, who are feeling more confident about upcoming renewals. The share of consumers expecting significant increases in mortgage payments has decreased, and those anticipating higher payments believe they will manage the added burden more effectively.
However, the lingering effects of high inflation and interest rates are still being felt. A significant portion of consumers report feeling financially worse off compared to previous years, with many expecting a recession in the near future. This cautious outlook is prompting people to prioritize saving and reduce discretionary spending on non-essential items, instead focusing more on essential purchases and housing costs.
Housing Market Activity
While fewer consumers this quarter are planning to move or sell their homes, home-buying intentions remain stable at average levels. Newcomers continue to show stronger interest in purchasing homes than other groups. Renters cite high rent prices, sufficient savings for a down payment, and improved mortgage rates as key motivators for entering the housing market. However, financial insecurity and elevated home prices are significant barriers, limiting their ability to act on these intentions.
Source: Bank of Canada
Labour Market Weakness
Consumers’ perceptions of the labour market have weakened, with expectations for wage growth softening for the first time since mid-2023. Public and private sector workers alike expect less wage growth, signalling a shift from the rising expectations seen in previous quarters. Despite this, job loss fears have decreased, and job search efforts have slightly relaxed.
Younger demographics, in particular, report more pronounced concerns about the job market, with expectations for wage growth among young consumers declining substantially. Many younger respondents noted that it has become harder to find even entry-level jobs, contributing to more cautious spending plans within this group.
