More Evidence the US Consumer Will Not Lead the Way Out

More Evidence the US Consumer Will Not Lead the Way Out

Pacifica Partners’ Financial Post Weekly Column – January 21st 2010

This and other articles also available online at: Financial Post & Investment Waves Blog

As the economy continues to shake off the cob webs of the last recession, some observers have long held to the idea the US consumer will not be at the forefront – leading the way to economic recovery. It will likely have to be led by an uptick in the inventory rebuilding cycle and capital spending.

Balance sheets are in very good shape in corporate America. On Main Street, the individual US consumer is still trying to pay down debt, rebuild lost savings after a fairly tough decade on the equity markets and real estate that has fallen in value beyond many people’s wildest expectations.

It is estimated that on average, the year after a recession tends to see US consumer spending rise by just over 4% according to the chart below. However, we are seeing something that has not happened before – consumer spending is still expected to fall in the first part of this year. Given that the recession is over for all intents and purposes, economic history shows that spending by US consumers should have begun to improve.

US Consumer Spending

(Click on chart to enlarge)

Given that the US has seen virtually no new net jobs created for the last decade and wage growth has been stagnant, consumers will take some time to begin spending again. In addition, this behavior is quite rational when we look at all of the challenges that have hit the economy in a relatively short time frame.

However, it would not be too surprising to see job growth start to improve faster than many might think. US businesses are squeezing every last bit of productivity out of their workforce. As the inventory replenishment cycle continues, they will have to add more employees.

This will provide a much needed jolt of confidence to the economy. Until then, the economic recovery will continue in a likely gradual manner that might take longer than historical experience would have led us to believe.

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This report is for information purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. The information contained in this report has been compiled from sources we believe to be reliable, however, we make no guarantee, representation or warranty, expressed or implied, as to such information’s accuracy or completeness. All opinions and estimates contained in this report, whether or not our own, are based on assumptions we believe to be reasonable as of the date of the report and are subject to change without notice. Past performance is not indicative of future performance. Please note that, as at the date of this report, our firm may hold positions in some of the companies mentioned.

Recession,Pacifica Partners,economic recovery,US consumer,consumer debt,Capital Management,inventory rebuilding,job creation,wage growth,paying down debt,corporate balance sheets

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