According to Andrew Grantham, an economist at CIBC World Markets, U.S. consumers are now ready to spend some more.
With the winter months behind us, Grantham believes that as a result of weaker business investment, housing and consumer spending will pick up this slack. He also believes that the pace will be sufficient to maintain the growth in the US on a moderate pace of between 2% and 2.5 percent.
Grantham views this shift as a ‘rotation’ towards housing and consumers as opposed to an acceleration of economic growth.
Supporting his views, the retail sales in the US in May were positive and the underlying growth rate for sales is now just below 4 percent. According to Grantham, with the current rate of income growth, this marks a “sustainable pace”.
In Q1 of 2015, spending among consumers declined as saving became more evident. This grew at an annual pace of 5.3 percent after inflation and taxes.
Added to this, Avery Shenfeld, a chief economist working with Grantham, is also bullish on housing. This has been prompted by younger adults finding more jobs compared to last year when the unemployment rate declined sharply for those individuals under the age of 30.
And so the cycle begins. As more adults get secure jobs, their households are being formed away from their parents’ house. According to Grantham, with younger adults starting their own families or moving out on their own and renting, the construction of multi-family housing will continue to boom.
In a forecasting contest which took place in May this year, Shenfeld and Grantham beat 48 other teams and their forecasts of industrial production and the CPI (consumer price index) were spot on. Also, out of 10 other forecasting teams, their forecasts for housing starts, new homes sales and ISM, were the most accurate.
This marked the 2nd time this year that Grantham and Shenfeld have won the monthly award while it also marked the 7th time that the team has won overall.