US consumer spending is ray of light in election gloom, say Canadian researchers
Jittery markets, trade rhetoric don't tell whole story south of the Canadian border, BC professors caution
As figures from the United States this week paint a promising economic picture, Canadians may need some help discerning between the numbers and public sentiment.
According to a report from Oxford Economics, US real consumer spending posted a year-over-year increase of 2.8 per cent during the second quarter. Nominal disposable income in the U.S. was up 0.2 per cent in June for a yearly increase of 3.1 per cent and Oxford expects consumer spending to lead GDP growth through the third quarter in the range of 2.5 per cent to three per cent.
Richard Johnston, a Canada Research chair in public opinion, elections and representation for the University of British Columbia, said despite the worry caused by a divisive election cycle and continuing social unrest, people south of the border are still opening up their wallets.
“The index of consumer sentiment is pretty positive so Americans in the large are actually reading the current situation correctly,” Johnston said. “And all the forecasting models for the election suggest the economy is not a big problem for Mrs. Clinton as the successor to the incumbent. It’s not terrific, could be better. It’s not 2000, but it’s definitely OK right now.”
A recent Gallup opinion poll found that despite increased consumer spending numbers, the majority of US citizens are more worried about their personal finances and the economy compared to last year. The poll looked at seven common financial concerns and found increases in every category, from paying medical costs and rent increases to mortgage worries.
On top of that, the stock markets have been in disarray. The Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite have all encountered serious setbacks and fluctuations lately, largely due the low price of oil and economic instability around the world, most notably the recent Brexit vote.
Lindsay Meredith, professor of marketing at Simon Fraser University, said while watching the US election from a Canadian economic perspective, it’s important to keep in mind that “markets and stock exchanges are their own little worlds.”
“And, frankly, sometimes markets and stock exchanges and futures exchanges, they get divorced from reality,” Meredith said. “We’ve seen cases where the markets are going to hell in a handbasket, the sky is falling, and good old consumer demand keeps on ticking right along.”
Meredith noted there are growing concerns about the rising debt levels of the US middle class, as well as the instability a Donald Trump presidency could bring.
“I think there are some serious concerns about Trump and I think that is most definitely affecting markets in the US,” he said. “Can it affect market activity in Canada? It sure can. Can the Dow have an effect on the TSX? Sure it can.”
Both Johnston and Meredith agreed when it comes to Canada’s financial stability, Hillary Clinton and the Democratic Party are the country’s safest bet. Meredith said if Trump were to be elected and were to follow through on his anti-free trade and protectionist promises, two Canadian provinces in particular could suffer.
“Ontario and Quebec will, because they’ve made a really bad habit of not wanting to diversify away from the States. Historically BC was in the same spot but we got smart – we diversified heavily into China, Southeast Asia and Japan. And when we had that last big downturn it was Quebec and Ontario that bled heavily, not BC.”