If retailers want Canadians to spend freely this holiday season and give the economy a jolt of festive cheer, they should keep their fingers crossed for a major Hollywood scandal in the next week or two.
Royal Bank of Canada launches a new index today to track consumer sentiment, and the research that went into it suggests that consumers are more likely to shop when the media is focused on something other than the economy and troubled banks.
Consumer confidence in Canada took a sharp downturn last fall and early this year during the financial meltdown, when the news headlines were dominated by job losses, the stock market crash and the crises in the auto and financial sectors.
But the consumer outlook began to perk up in late January, once the nightly news shifted to the H1N1 flu. That was no accident, says John Wright, senior vice-president at Ipsos Reid Corp., which is working on the new index.
"The next time we actually saw confidence come back was during the time that Michael Jackson died [in June]," he said. "And the reason for that, again, was that the media coverage was interrupted by another event."
But it's not only headlines that influence. Advertisements do, too.
"It was almost an institutionalized pessimism that came about with all of the advertising that started around the same time and always began with 'With tough economic times...' " Mr. Wright said.
With consumers accounting for roughly 60% of Canada's economy, sentiment is not a trivial matter. The bank decided to launch the new monthly index, called the RBC Canadian Consumer Outlook, because its executives felt that none of the consumer sentiment measures that currently exist in Canada were timely and thorough enough.
The RBC survey includes more than 30 questions.
Consumers are currently optimistic, but there is still a high level of anxiety, especially when it comes to jobs, said David McKay, head of Canadian banking at RBC.
Today's inaugural report, based on an online survey of 1,018 people aged 18 and over between Nov. 9 and Nov. 16, found that Canadians are more optimistic about how things will be a year from now than they are about the very near future.
Consumers plan to tighten their belts over the holidays, with about half planning to spend less than last year and 18% saying they will not buy any gifts at all. On average, Canadians expect to spend $1,218 on holiday purchases.
In all, 27% of those polled think their personal financial situation will improve in the next three months, while 38% expect their situation to improve in the next year.
Canadians say a recovery in the employment market is what will make them more optimistic once again.
"We're certainly launching this index at what we hope is the end of a difficult economic period," Mr. McKay said. "We're hoping it's close to the bottom."
