Consumer spending, the most important single influence on Canada's economic growth, seems poised to speed up significantly over the coming months.
That's true whether you look at consumer psychology or at the economic fundamentals that feed people's ability to spend.
The implication should be higher economic growth, since consumer spending alone accounts for more than half of all Canadian economic activity.
A widely watched indicator of consumer psychology, the Conference Board of Canada's consumer confidence index, shot up by nearly 14 points in January, the biggest monthly increase in its seven-year history.
A sustained increase of this size should translate into added spending of about $2.7 billion over the coming year, estimated the board's director of national forecasting, Pedro Antunes.
The apparent improvement in consumers' mood has a solid base in improving personal finances, believes economist Derek Holt at Scotia Capital Markets.
The outlook for consumer spending is driven by factors like job growth, household cash flow and low interest rates, all of which will be positive in Canada this year, Holt said.
He pointed out that while interest rates could well be rising late this year, they will remain very low.
Canada, he said, has "one of the best outlooks for household wealth of just about any advanced economy." Rising household wealth tends to stimulate people's willingness to spend.
Why the rising wealth? First, there's the recovery in stock markets, which Holt estimates to have completely healed the severe losses inflicted on Canadians' retirement savings.
Second, and perhaps even more important, home values in Canada have already recovered the losses they suffered through last spring. So far, values are still growing rapidly. That's a sharp contrast with the U.S., Britain and many other countries, where home values remain seriously depressed.
With rising household wealth and an upturn in the job market already underway, Holt believes, "the net consumer spending picture in Canada will be among the more resilient in the developed world this year."
In contrast to the U.S., where job losses continue, Canada has created 91,000 jobs since last July.
The confidence index is derived from answers to four questions asked of more than 2,000 consumers. In January, all four showed improving confidence, with answers about the job outlook particularly optimistic.
The proportion expecting to see more jobs in their communities six months from now jumped 2.6 percentage points to 26.7, the highest level in the survey's history.
In another strong result, the proportion expecting their finances to deteriorate in the next six months fell 3.3 percentage points to 10.6%, its lowest level in nearly two years. And 33.5% expected an improvement in future personal finances, a jump of 6.8 percentage points.
Feelings about their current financial situation, which hadn't improved much last year, finally did rise significantly in January. The Conference Board survey found 19% saying their finances had improved over the past six months, up 4.4 percentage points in the month. The proportion whose finances deteriorated dropped 4.7 percentage points to 19.9%.
While every region showed strong improvement in January, the level of confidence varies widely, from a high of 109.1 in British Columbia to a low of 82.9 in Quebec.
Another consumer outlook survey, introduced late last year, didn't find the rising confidence shown in the Conference Board's. The RBC Canadian consumer outlook index fell by two points to 106, a result characterized as a modest "slip" by John Wright of Ipsos Reid, the polling firm that carries out the survey for RBC. The RBC survey had been rising before this.
The RBC survey aims more at current conditions than the Conference Board one, and places particularly heavy weight on fears about job insecurity, which it found had risen in January.
Unlike the Conference Board survey, which focuses only on consumers' own finances, a question in the RBC survey asks about the health of the whole economy.
Questions about broad economic conditions can give a less accurate insight into consumer behaviour because responses rely on second-hand knowledge, suggested Jack Jedwab, executive director of the Association for Canadian Studies and a specialist in public-opinion surveys.
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