Here's Allan Robinson's At The Bell which you'll find in tomorrow's newspaper:
U.S. consumers might be down, but they are definitely not out, if the forecasts for today's economic data are right.
“The bottom line is we survived the first quarter and the cheques are coming in the second quarter,” said Bill Cheney, chief economist with MFC Global Investment Management, an arm of Manulife Financial Corp., referring to the $600 (U.S.) to $1,200 in tax rebates being sent out to 130 million households.
“I think people are underestimating the effect this will have on consumers,” he said. If consumers spend only 40 per cent of the rebate that adds up to about a growth rate of 3 per cent in personal consumption spending, he said.
WHAT ARE THE EXPECTATIONS?
Personal spending is forecast to have increased 0.2 per cent in March, compared with a 0.1-per-cent rise in February, according to a survey of economists by Bloomberg. But Merrill Lynch & Co. Inc. cautions that after adjusting for higher prices of food, energy and prescription drugs prices, in real terms personal consumption fell marginally.
Meanwhile, personal income growth has changed little over the past three years and it is expected to have increased 0.4 per cent in March, following a 0.5-per-cent rise in February.
For now U.S. consumers are coping with lower house prices and high gasoline prices and Mr. Cheney does not think consumer spending will fall off a cliff. But in the future investors around the world will have to get used to the gradual transition from consumer spending generating U.S. economic growth to a greater contribution from U.S. exports, Mr. Cheney said. “I think there will be ongoing pressure on consumers in the years ahead,” he said. “That is starting to happen and it should continue.”
Economists expect the U.S. consumer will start to boost their negligible savings rates and pay down the credit card bills.
“Investors should temper the hype surrounding the government tax rebates,” advised BCA Research. “Tax rebates are unlikely to ignite a sustainable rally in retail stocks.” Consumers are facing higher energy and food bills, while retailers will see their margins squeezed as they attempt to lure shoppers, BCA said.
Those retailers most likely to benefit from the tough times are discount retailers like Wal-Mart Stores Inc., Costco Wholesale Corp. and Target Corp., strategists say.
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