Those pesky fundamentals. -vreaa
A CIBC report on the Canadian consumer, as reported in Financial Post, 31 Mar 2010. Excerpts -
“Consumer fundamentals are at their weakest point in 15 years and do not match up with recent rebounds in sentiment.”
“The recent surge in spending is not backed up by rising consumer fundamentals,” Benjamin Tal, economist with CIBC, said in the report. “The ‘V-shaped’ recovery in consumer confidence we have seen throughout the second half of 2009, has actually coincided with a drop in the ability of households to spend.”
“To a certain extent debt is replacing income as a major driver of consumer purchases,” he said. “Given the vulnerable starting point of the consumer, the Bank of Canada will soon find that even a moderate monetary squeeze will be sufficient to drive a material deceleration in consumer spending.”
The gap between real estate gains and income growth is widening? This is news? It was true from 2002-2008.
rp,
Agreed but I think he is referring to the widening gap. The fundamental problem is that the recovery has not kicked in and increased wages. In a normal recovery the spending would have stimulated the economy and wages would be lifting to off set the borrowing. Clearly this is not happening at a mass level. This is going to get very bad.
I think if you look at the history, you’ll see that even when income growth kicks in, the rates of income growth never approach the rates of debt growth and the discrepancy simply grows over time.
The last time income made any gains on debt was in the 1990′s, and it was very temporary. Debt to income has expanded relentlessly since 1980.
rp,
Agreed. Income rises never off set the rise in interest rates or other debt. The real estate market will not escape collapse even with a V-shaped recovery (which I doubt). There is no possibility other than a crash.
I didn’t know Mr Tal had a bearrish bone in his body
I’ve followed the banking economists for some time and I have to say Mr. Tal is probably the worst one (in my opinion of course)