Kingsmill's Investment Miscellanea: Friday, April 9, 2021

Apr 09, 2021 | Joshua Kingsmill


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Key Takeaways

  • Consumer spending on the rise is a good sign
  • Even relative to two years ago, spending has increased, for a number of reasons
  • Economic expansion and spending by consumers, does provide opportunities and pitfalls to avoid as things continue to improve

I’ve talked about in the past about the importance of the consumer for the recovery in our economy (and more so in the U.S.). Going back to the concept of another Roaring 20s, certainly consumer spending is on the rise. Year over year numbers aren’t fair, that’s why I like this graph which shows pre-pandemic, last year, as well as what is emerging this year.

Overall Spending

 

Now the recent more stringent Stay at Home orders in Ontario, will no doubt dampen spending in the short term, as Ontario represents approximately 40% of the total Canadian economy, and 35% of total population. This will weigh particularly on spending in the hospitality sector. But vaccine distribution is also ramping up, and that is expected to pave the way for less restrictions and more household spending in those hardest-hit sectors over the summer.

So Canadians – like their U.S. counterparts – have saved a meaningful portion of the expansive stimulus that has made its way into the economy over the past year from both monetary and fiscal policymakers. Those savings have created a nest egg from which to fund spending into an economic reopening that for months has seemed just over the horizon.

While year over year retail spending growth is very high, this is largely due to the very low levels from one year ago, as I highlighted above. However, over the past 2 months, Canadians have been spending faster than they were two years ago, with notable exceptions in hard hit sectors such as accommodation or dining, where spending remains well below pre-COVID levels.

As investors, we have to be mindful of this shift in sentiment, and economic reality: some of the stocks that did exceeding well during the pandemic (some of the so-called Covid-stocks), might be less appealing going forward. Conversely, we can’t fall into the trap of chasing “recovery stocks” that might have gone up too much in anticipation and as a result of the improvements in consumer sentiment and behaviour.

This week, this year, one bit of normalcy has returned. For me, The Masters is kind of the start of a New Year: time to think about the gardens, and for many of us, dusting off our golf clubs. Recall they had a Master’s last year in the Fall, so it is like having Christmas twice in less than a year!) By the way, they have just an incredible modern web site for such a stodgy traditional (LINK), which I freely admit is on in the background as I send this off. No doubt on Sunday, I will be cheering as Lee Westwood (who I once met!), will be getting fitted for his first Green Jacket.