Canadian Survey of Consumer Expectations—Fourth Quarter of 2024

Results of the fourth-quarter survey | Vol. 5.4 | January 20, 2025

The Canadian Survey of Consumer Expectations was conducted through an online panel from October 31 to November 20, 2024. Follow-up phone interviews took place from November 25 to December 3, 2024.

Overview

• Results of the fourth quarter 2024 survey show that consumers perceived an improvement in their financial health relative to the previous quarter, mainly due to recent interest rate cuts and consumers’ expectation of further cuts ahead. This contributed to improved consumer sentiment.
• Fewer consumers reported that they are spending less or plan to reduce their spending; and, for the first time since 2021, consumers said they expect their spending to increase faster than they expect prices to rise. Still, consumers reported that the high prices of many goods and services, economic uncertainty and elevated housing costs continue to weigh on spending decisions.
• Consumer confidence in the labour market weakened in the fourth quarter and is now slightly below the survey average. Survey results show that young consumers and those with a high school diploma or less education perceived more weakness in the labour market than other respondents did. Expectations for wage growth remain unchanged from last quarter, still above where they were before the COVID‑19 pandemic.
• Consumers’ inflation expectations have largely returned to historical norms. But perceptions of current inflation and the level of disagreement among consumers about where inflation is heading next year remain elevated.

Consumer sentiment has improved but remains subdued

In this survey, consumers perceived an improvement in their financial health (Chart 1, black line). Fewer consumers than last quarter reported that their finances had worsened over the past 12 months. In addition, more consumers said they see access to credit as easier than before, and more expect access to continue to improve. These positive developments, which are broad-based across both renters and homeowners, partly reflect recent interest rate cuts and consumers’ expectations of further cuts. In contrast, despite this general improvement in perceived financial health, the perceived risk of missing a debt payment increased. This is notably the case for renters, who, according to survey results, generally experience more affordability issues than homeowners. This result echoes the assessment last spring in the Bank of Canada’s Financial Stability Report—2024, when signs of increased financial stress appeared more concentrated among renters.

Overall, mortgage holders (roughly one-third of all respondents) continued to show signs of optimism about mortgage renewals. As interest rate expectations decline, fewer mortgage holders than last quarter said they expect their mortgage payments to increase at renewal. In addition, those expecting higher payments when they renew remain confident that they will be able to cope with their new payment. In a follow-up interview, one person said, “My financial situation should stay the same in the next year, but I’m hoping in two years it will improve because my mortgage payment should be lower than what we are currently paying.”

Feeling less pessimistic about their financial situation than they were a quarter ago, consumers reported stronger spending plans. The share who said they are reducing or planning to reduce their overall spending in light of their expectations for inflation and interest rates declined again in the fourth quarter (Chart 2). In a follow-up interview, one person said, “Rates are coming down, which is good, so I am hoping they will continue to go down, and that will help us a lot.”

In addition, for the first time since 2021, consumers said they expect their spending to grow faster than they expect prices to increase (Chart 3).

Similar to last quarter, in this survey consumers reported strong intentions to increase spending on essential purchases and housing costs over the next 12 months (Chart 4). Intentions to increase spending on discretionary items—such as durables (e.g., furniture, appliances and vehicles), restaurant meals and vacations—remained low but increased compared with last quarter. These categories tend to be sensitive to changes in interest rates.

Anticipating that interest rates will decrease further, more consumers than in the previous survey said they are planning to buy a house or condo (Chart 5). Survey results show that these home‑buying intentions are supported by consumers seeing and expecting easier credit conditions. However, the timing of home purchases remains uncertain for many consumers—those planning to buy a home over the next 12 months said they anticipate around a 50% probability of actually carrying through with those plans.

Despite these improvements in spending plans, consumers reported that some factors continue to weigh on their purchase decisions—in particular, the high prices of many goods and services, economic uncertainty and elevated housing costs (Chart 6). Moreover, still nearly half of consumers said they expect a recession in the coming year, and most consumers (58% this quarter and 60% last quarter) remain uncertain about where the economy is heading. But survey results show that the sources of this uncertainty have shifted from interest rates and government policies to global tensions, including from the new US administration. During follow-up interviews, consumers continued to mention how they are adjusting to these factors that weigh on their purchase decisions, such as by changing their shopping behaviour.

Consumer confidence in the labour market has weakened further

Despite feeling better about their financial health and spending intentions, consumers indicated they believe the labour market has weakened further. Most notably, consumers’ reported probability of losing their job increased compared with a quarter ago (Chart 7). During follow-up interviews, some consumers appeared worried about their employment. One said, “Job security is low because there are so many of us that can do the same job.” In addition, consumers searching for work in the fourth quarter did so for a longer time than those searching in the previous quarter.

In this survey, reported perceptions about labour market conditions varied across demographic groups. Young people and those with a high school diploma or less education perceived more weakness in the labour market than other consumers.

At the same time, survey results show that the likelihood of voluntarily leaving a job increased from a quarter ago. Low-income and private sector workers in particular reported stronger intentions to switch jobs for better pay than others did.

Overall, consumer sentiment about labour market conditions fell to just below the survey average.

Survey results show that for all workers, expectations for wage growth were unchanged relative to last quarter and remain near the survey high (Chart 8, black line). Respondents said cost-of-living adjustments are still the most important factor driving their wage growth expectations. This is especially true for public sector workers, who tend to rely more than other workers do on collective bargaining agreements. The reported wage growth expectations of public sector workers declined for the second consecutive quarter because these workers think the pace of cost-of-living adjustments slowed.

Consumers’ inflation expectations are largely back to their pre‑pandemic levels

Consumers’ inflation expectations continued to decline. Expectations for inflation over the next 12 months have declined significantly since the last survey and are now close to their historical norms (Chart 9, blue line). Expectations for inflation two years and five years from now are also back to their pre‑pandemic levels and in line with the Bank’s inflation target (Chart 9, yellow and green lines).

In follow-up interviews, some respondents noted that inflation is returning to normal. One person said, “It's encouraging that it’s finally under control, like we are back to a reasonable rate of inflation.” Another said, “Inflation is not as high as during the pandemic; I think it’s stabilizing.”

Consumers’ inflation expectations for food and gasoline prices remained near their survey averages in the fourth quarter, while inflation expectations for rent eased further. However, consumers continued to think rent will grow at a slightly faster pace than before the pandemic (Chart 10).

Not everything is back to normal, however. Consumers’ reported perceptions of current inflation are still higher than pre‑pandemic levels (Chart 9, black line). In addition, their views about where inflation is heading over the next 12 months remain more diverse than normal, with more people expecting deflation or very high levels of inflation.

The Canadian Survey of Consumer Expectations gathers respondents’ views on inflation, the labour market and household finances. Additional information on the survey and its content is available on the Bank of Canada website. The survey report summarizes opinions expressed by the respondents and does not necessarily reflect the views of the Bank of Canada.