In each EconMinute, Business Council of Alberta economist Alicia Planincic seeks to better understand the economic issues that matter to Canadians: from business competitiveness to housing affordability to living standards and our country’s lack of productivity growth. She strives to answer burning questions, tackle misconceptions, and uncover what’s really going on in the Canadian economy.
In a news conference last week, Minister Freeland said that one of the problems the government is hoping to solve with the recently announced GST holiday is the disconnect between how Canadians feel about the economy and how things actually are. Or what’s been coined the “vibecession.”
It’s true that inflation is back down to normal, and the Canadian economy is doing okay. But are the vibes really that bad?
Vibes are not a new idea to economists. The idea that emotions could affect financial decisions and, in turn, economic growth was popularized nearly a century ago with the term “animal spirits.” Basically, if you think your job is at risk (whether or not it actually is), you’re probably not going to be eager to go out and buy a new car.
Human emotion—be it vibes or animal spirits—can’t be measured well or directly, at least not by economists, but consumers’ confidence in the economy can. In fact, it’s a pretty standard economic indicator measured across most of the rich world.
This measure, which is based on a survey of consumers, captures people’s perception of the economy. Specifically, the survey asks people their thoughts on the state of the economy, their personal finances, and job security, as well as how they think that will change in the months ahead.
Based on this measure, the vibes are…okay. The latest reading is 49 which is actually pretty neutral (anything above 50 is positive).
Graphic credit: Janice Nelson.
That said, Canadians are usually much more chipper. In fact, outside of COVID, they’ve never been less chipper. Since 2022, consumer confidence has been well below its historic average, and we’re in the first real (non-pandemic) period of sustained negative sentiment since data was first collected. It’s understandable that consumers were gloomy when inflation was at its worst, but consumer confidence hasn’t shown a clear sign of improvement since.
As for what to do about it, some economists would argue that there is a role for policy intervention and that, without it, things could get worse. But whether it’s the vibes or other economic factors holding back consumer spending, and whether a tax holiday on diapers, toys, and Christmas trees can fix it is yet to be seen.
A version of this post was originally published by the Business Council of Alberta at businesscouncilab.com.
Alicia Planincic is the Director of Policy & Economics at the Business Council of Alberta. She regularly provides insight and analysis on the Canadian economy, public finances, labour markets, equity and social mobility, and public policy.
