NEW YORK (CNNMoney) -- American consumers are finally opening their wallets again, according to an exclusive CNNMoney survey, raising hopes that the long-suffering economy could get a boost. The survey of 27 leading economists forecasts that personal consumption, a measure of consumer spending, jumped by 4% in the fourth quarter. If that forecast is correct, it will be the strongest increase in that key reading since 2006. "Those who were employed during the recession were often afraid of spending due to fears of losing their jobs," said Jharonne Martis-Olivo, director of consumer research for Thomson Reuters. "I do think they opened up during the fourth quarter." The bullish outlook for consumer spending is the reason why economists now forecast that Friday's reading on gross domestic product, the government's main measure of the economy's strength, grew at a 3.5% annual rate in the fourth quarter -- a significant increase from a 2.6% rise in the previous quarter. "You won't see this kind of pop every quarter -- we're not going to have Christmas again in the first quarter. But the worst is over," said David Wyss, chief economist at Standard & Poor's. "I think there has been a corner turned here." The spending improvements are broad-based, including a strong holiday shopping season and a rebound in demand for new cars. Consumers finally bought big-ticket items that they had held off on during the recession, with Thomson-Reuters forecasting a 24% annual rise in spending for such purchases. "There was a big release of pent-up demand in the fourth quarter that has been building up for a couple of years, at least," said George Mokrzan, senior economist, Huntington National Bank, who is forecasting that personal consumption jumped by 4.5% in the period. He expects the gains in consumer spending to continue throughout 2011 as employers add more workers to meet increased demand, and workers benefit from the partial holiday in payroll taxes and greater credit availability. Improvements in the stock market have also helped give consumers more confidence, reducing the drive to choose saving over spending. The savings rate, which had climbed to 7.2% in early 2009, had fallen to near 5% by the end of 2010. "People got bored with being frugal. It's much more fun to go out there and spend money," said Wyss. The 3.5% growth forecast for GDP is solid but not spectacular -- the economy grew at a faster rate at the end of 2009 and the start of 2010. But those gains came with little help from consumers, driven instead by government stimulus spending and a restocking of business inventories that had been slashed during the recession -- what Robert Brusca of FAO Economics calls a sugar rush. "This growth isn't a sugar rush. It's protein," he said of the current strength of the recovery. His prediction for personal consumption is the most bullish -- up 4.7% -- even though he's expecting a more modest 3.8% gain in overall GDP. "There are all kinds of little indicators like this that suggest people who have jobs are more secure and starting to spend," Brusca said.Consumer rebound: No 'sugar rush' - it's 'protein'
By Chris Isidore, senior writer
Wednesday, January 26, 2011
USA retail rebounded in 4th Q 2010
Canada stock market in the sweet spot
Robert Haber is an American living in Boston, but he’s keen on Canada as a place to invest.
He thinks Canada’s stock market, which has outperformed the U.S. market for the past seven years, will continue to be a high flyer for 10 more years.
“The global balance of power is shifting and Canada is sitting in the sweet spot,” he says in his new book, Go Canada: The Coming Boom in the Toronto Stock Market and How to Profit from It (Fenn, $21.95).
Haber was chief investment officer for Fidelity Canada for 12 years, where he built a team of 20 analysts who followed Canadian stocks.
He left Fidelity last year when it moved its Canadian analysts to Montreal. As a part owner of the Boston Celtics basketball team, he didn’t want to relocate.
Now he has his own company and he’s managing funds for Canoe Financial, whose chairman is Brett Wilson from CBC-TV’s Dragons’ Den.
His book, which came out this month, is selling so well that it’s out of stock at Amazon.ca. You can still find copies at Chapters and Indigo stores.
It’s a love story by an American who says about Canada, “You’re running a better country.”
Contrary to those who think Canada’s stock market boom is in the past, Haber thinks it’s just started.
The TSX will deliver an average growth rate of 10 per cent a year, he says, taking it to about 18,000 points (from today’s 13,000) over the next eight to 10 years.
But the index could hit 30,000 points, he predicts, as foreign investors discover the Canadian market. In other words, a bubble is in the making.
“The Internet bubble saw the market overbought to its highest point ever – 50 per cent,” he says.
“At the 11,000-point level, the TSX is 20 per cent oversold. I think we’ll visit the 50 per cent territory again.”
In particular, he foresees great prospects for oil, gold and agriculture stocks.
Developing countries need the commodities Canada produces as they urbanize and build their infrastructure.
China’s GDP is growing at 25 per cent a year before inflation, compared to the developed world’s growth of 2 to 5 per cent a year.
China, India, Russia and Brazil – referred to collectively as the BRICs – contributed 28 per cent of world GDP growth at the end of 2009.
“Demand is outstripping expectations but we’ve had very little, if any, growth in supply,” he points out.
Global gold production has not been this low since 2000. Oil faces a similar crunch, with no growth in production since 2005.
Meanwhile, the world is losing its ability to feed itself because of rising global populations, increasing demand for high-protein diets and the loss of arable land suitable for growing crops.
“During the next 20 years, food production may need to rise 50 per cent to meet demand,” he predicts.
Haber believes we’ve never seen industrialization on this large a scale. The BRICs’ combined population is 2.5 to 3 billion – or 40 per cent of the planet’s population.
“This is massive. Never before has such a large number of people graduated from the underdeveloped to the developing world.”
Gold, oil and agriculture are not big sectors in the U.S. or European markets. No other market, except perhaps Australia, has the exposure Canada does to the BRICs’ boom.
Haber’s book is more about picking the right sectors than the right stocks. Among the names he like are Potash Corp. (“an incredibly well-run company”) and Canadian Pacific (“a big transporter of grain and fertilizer”).
Just remember one thing. The boom will not go straight up.
“There will be dips along the way to the boom,” he writes. “Taking advantage of those dips will be important to profiting from the boom.”
Gold and silver stocks, for example, are coming off a great run this month. But don’t be concerned, he says, since you can buy them when they’re low.
Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.
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