Tis’ the season to be jolly.
Now that Remembrance Day has passed, we are not that far away from the start of the holiday shopping season. It’s hard to believe, but in a few weeks Christmas will be here. With the economy in the shape it is now, most consumers will be cutting back considerably or will they?
Scotia Bank economists Derek Holt and Karen Cordes said that lower energy costs have put an extra $10-billion in the pockets of Canadian consumers when compared with cost peaks hit in the summer. That includes costs to run vehicles and heat homes, among other things. Mr. Holt, however, cautioned last Tuesday that this does not necessarily translate into a boom for retailers this holiday season.
The Christmas buying season plays a vital role in the success of a retailer. And when it comes to a good retail sales year, consumer confidence is king. On Oct. 17, 2008, the Conference Board reported that consumer confidence in Canada had fallen to levels not seen since the third quarter of 1982.
CIBC World Markets had an even more depressing evaluation, saying that fear of job losses and reduced incomes are rapidly changing consumer behaviour, which could leave retailers facing the worst sales season in two decades.
Last week, Ernst & Young released its own retail forecast for Canada, which called for slower year-over-year growth in holiday spending. It also said shoppers will be more selective about where they shop and what they buy this holiday season.
All these predictions were all compiled from a mountain of Canadian economic data:
“Canadian housing starts in October resumed a downward trend, albeit barely so, dropping 3.1% in the month to an annualized 211,800. Expectations had been for a more pronounced drop to 200,000. So far this year housing starts have averaged 220,700 which is down a modest 4.7% from the same period last year. This is in stark contrast to the US where over the first nine months of this year (the US October numbers will be released next week), starts are down 29.8% compared to year ago levels.
The decline in overall starts in October largely reflected a 6.0% drop in the urban multiples component to an annualized 115,300. Starts of urban single-detached units fell as well though by a more modest 1.1% to 69,300. Some offset was provided by starts in rural areas which rose 5.0% to 27,200 units.” Source: RBC Financial Group.
So what does all this mean? Trouble. Maybe. Consumers always spend more than they intend during the holiday season, and with Canadians currently enjoying lower gas prices they’ll have a little more cash in their wallets.
Just remember, the consumer mood may be just as somber as it was in late 1982 — but that economic downturn did give way to one of the largest economic expansions of modern times. And this one will be no different.
The Janitor of Bentall-5 has declared the Market Has Reached Its [Relative] Bottom. Forget all the money you have lost in the market. Go invest in some exceptional companies. Just remember the companies you buy in the next six months will determine how rich or how poor you will be in five to ten years. Don’t just set there. Do something. Go shopping. Spend some money. It’s cheaper than therapy.