The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

Inside the Market

Up-to-the-minute insights
on developing market news

Entry archive:

Purse strings expected to stay tight Add to ...

Here's Allan Robinson's At The Bell which you'll find in Wednesday's newspaper: The U.S. economy, and some would say much of the world, depend on whether U.S. consumers will return to their spendthrift ways in 2009. But by all indications that is unlikely to happen given the state of the jobs market and the continued erosion of wealth in home prices and the stock market. Today's economic figures are expected to reaffirm the gloomy outlook. Personal income is forecast to remain unchanged in November, after increasing 0.3 per cent in October, according to a survey of economists by Bloomberg. Personal spending should reflect the continued belt-tightening as economists forecast a 0.7-per-cent drop in November, compared with the 1-per-cent decline in October. If there is a bright side, it is this: "The income-spending mix will push up the personal savings rate to 2.8 per cent, the highest in nearly 51/2 years, apart from the May, 2008, spike to 4.8 per cent due to the tax rebates," said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc. But even frugality can be viewed as a negative. "A penny saved is a penny earned, but for the economy it's also a penny that isn't spent," Avery Shenfeld and Benjamin Tal, economists with CIBC World Markets Inc., wrote in a report to clients. The urge to save more and borrow less suggests consumer spending will be severely depressed over the next several quarters, they said. "The broad downward trend in U.S. and Canadian savings rates tells the tale of a consumer binge over the past decade, financed by borrowing against huge paper gains in wealth." CIBC World Markets does not expect the erosion in wealth caused by lower house and stock prices to end until the second quarter of 2009. It suggests the savings rate will peak at more than 4 per cent in the third quarter before gradually easing as equity markets improve. "As a result, equities tied to American household spending will have a lot of bad news to get through," the economists said. So where can the growth next year come from? "It's the East Asian consumer that will have to do more to carry the ball in world growth if North Americans are going to live within their means for a while," they said. "That suggests that commodities demand - to feed into Chinese manufacturing for its domestic and regional market - could rebound before we see American consumers return to their former vigour."

Editors' Picks

Most popular videos »

Highlights

More from The Globe and Mail

Most Popular Stories