Gluskin Sheff’s David Rosenberg thinks the U.S. consumer is taking the torch from housing to drive the U.S. and global economy higher.
He writes that the comeback of the American consumer “is the upside surprise for 2014,” along with a recovery in business capital spending. Here’s why:
First, this chart shows that the American consumer, if it were a country, would account for 15% of global GDP.
So, if the American consumer were making a comeback, OECD economies — particularly those over 50% correlation between their GDP growth rate and the behaviour of the American consumer — stand to benefit too.
So what’s behind Rosenberg’s optimism for the American consumer?
“Balance sheets have moved into much better shape in the aftermath of the acute five-year deleveraging cycle. They need for more fiscal belt-tightening, which led to personal tax payments running at a double digit annual rate from 2011 to 2013, is all but over and should help augment disposable incomes, which are likely to get a lift in any event from gradually improving employment conditions and a tighter labour market. Plus, there is still considerable pent-up demand, especially given the record old age of the auto fleet and housing stock too. And we are seeing a turn for the better in employment growth for the 25-24 age cohort which bodes well fro real estate and housing-related spending even with mortgage rates tracking Treasury yields higher.”
Rosenberg previously said it is “the year of the horse, the one that’s about to break out of the gate.”