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Smoke, drink, gamble less to boost savings rate, CIBC says

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How to cut spending Canadians have been warned for months now to prepare for the inevitable rise in interest rates by cutting back on borrowing and boosting their savings. CIBC World Markets says consumers can do that by spending less on clothes, gambling, smoking and drinking.

"How much sacrifice does it take to reach the 6 per cent savings rate threshold?" deputy chief economist Benjamin Tal asked in a new report?

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Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate, Globe and Mail banking writer Grant Robertson reports.

"Based on Statistics Canada's Household Expenditures Survey, the average annual expenditures of a Canadian household is just over $71,000. Out of this amount close to $11,000 is spent on clothing, personal care, recreation, games of chance, tobacco products and alcoholic beverages. All other things being equal, cutting spending on those categories by only 10 per cent will raise the savings rate from the current 4.2 per cent to 6 per cent."

U.S. consumers pull it in U.S. consumers are feeling the pinch of higher energy and food costs.

Personal spending in the United States increased 0.2 per cent in January as consumers put their focus on paying down their credit cards after Christmas.

Incomes rose on tax cuts and wage gains, but spending on food and at the gas pump dipped.

"American consumers took a step back at the start of the year, as rising food and fuel costs drained purchasing power. Real spending likely slowed to a 2.5-per-cent annualized rate in [the first quarter] after surging the most in nearly five years (4.1 per cent) in [the fourth quarter]. However, stronger job growth should support spending going forward."

Economy ends year on stronger note Canada's economy ended 2010 on a better-than-expected note, driven by the biggest increase in exports since 2004.

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The economy grew by 0.5 per cent in December, The Globe and Mail's Tavia Grant reports today. In the fourth quarter, gross domestic product increased at an annual rate of 3.3 per cent. Both readings were better than economists expected, with December's pace the best in nine months. Statistics Canada also revised its reading for the third quarter, bringing the pace to 1.8 per cent from its earlier estimate of 1 per cent.

Consumer spending also helped pump up the economy in the fourth quarter, according to the federal statistics gathering agency.

"All told, the last quarter of the year erased the disappointment of a sluggish summer, and points to a healthy start to the new year," said CIBC World Markets chief economist Avery Shenfeld. "Look for a more hawkish line from the Bank of Canada tomorrow that sets the stage for a rate hike in [the second quarter]. Bearish for bonds, bullish for the [Canadian dollar]."

Industry Minister Tony Clement noted on Twitter that Canadian growth is the highest among the G7 countries, but that "this is no time to rest on laurels."

Statistics Canada also reported that the current account deficit, which marks the broadest measure of trade, narrowed to $11-billion from a record $17-billion.

What a tangled web we weave The web in the mining sector is getting awfully tangled.

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As Globe and Mail mining writer Brenda Bouw reports today, Australian copper miner Equinox Miners Ltd. has launched a hostile bid for Canada's Lundin Mining Corp. , which itself is poised to merged with Inmet Mining Corp.

With everything in such flux, it will be fascinating to watch this one play out. UBS Securities Canada analyst Onno Rutten said today he sees "a high probability of success" for Equinox's $4.8-billion cash-and-stock offer because Inmet appears to have "limited ability" to match it.

And here's a twist, according to Mr. Rutten: "Given the magnitude of the transaction, we therefore believe that the offer for Lundin could result in Equinox itself becoming 'in play.'"

For Equinox, Mr. Rutten added, it's eat or be eaten. And, he said, "the most probable outcome of our scenario analysis is that the current Equinox bid succeeds, without the need for a bump." Given that, he boosted his price target on Lundin stock by 10 per cent to $8.10.

RBC boosts potash outlook RBC Dominion Securities today boosted its outlook for Canada potash producer, raising its price targets on the stocks of Potash Corp. of Saskatchewan and Agrium Inc. .

For Potash, analyst Fai Lee boosted the price target to $222 (U.S.) from $204, or to $74 from $68 after a stock split, and for Agrium to $110 from $106. Also revised up was the target for The Mosaic Co. , to $109 from $102.

RBC now expects higher potash prices for 2012.

Aeroplan flying higher Desjardins Securities today boosted its price target on shares of Groupe Aeroplan Inc. to $15 from $14 after the company's fourth-quarter earnings last week.

"While there was some disappointing news in Aeroplan's 2011 guidance, such as lower-than-expected free cash flow, the stronger-than-expected revenue growth in the quarter bodes well for 2011," said analyst Martin Landry.

"We believe Aeroplan is the worldwide leader in loyalty programs, given its wide geographic coverage, technological strength and experienced management across its divisions. The global loyalty business is expected to reach $100-billion by 2015, and we believe the company is well-positioned to leverage its strengths and gain market share in an expanding industry. The company expects to continue repurchasing its shares, which should support the stock price."

Boyd Erman's Morning Meeting First it was Brookfield Asset Management and Canada Pension Plan Investment Board. Now it's Blackstone Group. U.S. shopping malls are drawing interest from big real estate investors with a value bent, Streetwise columnist Boyd Erman reports today.

In Economy Lab today

The federal government's deficit is – or should be – the focus of the upcoming budget. One theme pervading the public debate posits that the size of the federal government has grown to an all-time high, so the solution to its deficit problem lies in reducing its operating expenses. But this view is mistaken, on at least two counts, economist Stephen Gordon writes today.

In Personal Finance today

A new report warns that treating our homes as piggybanks is no longer an option as the property market moderates, Grant Robertson reports.

Starting early is key to helping children become financially literate adults, Dianne Nice writes.

Always read the fine print before you buy an online coupon. Some deals may include month-long waiting lists, added tax and expiry dates.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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