Wednesday, July 2, 2008

Consumers to pull back from spending 'like drunken sailors': report

Canadian consumers over the next two years are expected to rein in their spending habits as the job market softens and the real estate market cools, according to a TD report released Wednesday.

The report suggests spending growth will pull back from above five per cent in 2008 to 2.6 per cent in 2009 in year-over-year comparisons.

Consumers to pull back from spending 'like drunken sailors': report

'I don't think this was rocket science to know that sooner than later that there would have to be belt tightening coming our way.'

--Sunlover

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"Households have been spending almost like drunken sailors over the past couple of years, which provided critical support to the economy when the export-oriented manufacturing sector had been suffering under the weight of a strong currency and flagging U.S. demand," said the report by TD economists Craig Alexander and James Marple.

"The central question is whether consumers can keep tipping pints or whether a hangover is in store."

Alexander and Marple suggest commodity prices will moderate while the Canadian nominal GDP growth will fall from 5.9 per cent in 2007 to 3.5 per cent in 2009.

According to the report, the rate of job creation in the first quarter reached two per cent — with half of the new jobs based in Ontario. The study noted job creation increased construction and public administration sectors, both of which now appear to be slowing.

The real estate market is also expected to moderate, the report said, pegging average national prices to increase by two per cent in 2008 and 3.5 per cent in 2009. Price corrections were expected in regions including Saskatoon and Calgary.

The rate of personal wealth will slow as growth in financial assets temper, the report said.

"Consumers will still be able to largely tap past gains in personal wealth, but the support to consumer spending should wane with time, implying more modest spending growth ahead. It should also be noted that the cooling in real estate will not only impact household wealth, but it will also tend to dampen demand for housing-related purchases, such as furniture and appliances," said the report.



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