CHEAP NATION STRIKES BACK

Spendthrifts no more, we are back to bargain hunting

It’s a good thing we’re not relying on consumers to drive the economy anymore. Canadian shoppers are out there, all right, but they are being picky about prices and avoiding big-ticket items.

That pattern is being reflected in sluggish retail sales and weak overall inflation.

For consumers still willing to spend, that also means there is little threat of higher interest rates any time soon. But it’s not such good news for the economy — stuck in a rut and waiting for businesses to buck and invest.

A double offering of data on Friday showed consumer purchases, based on dollar values, were up only 0.1% in April — and that weakness comes after a flat performance a month earlier, according to Statistics Canada.

The year-over-year reading wasn’t much better, with the value of retail sales rising by just 1.5%.

Combined with a weak consumer prices report from Statistics Canada that showed a meager 0.7% annual increase in May, the numbers indicate consumers are “being exceedingly careful,” said Douglas Porter, chief economist at BMO Capital Markets.

“Obviously, consumers are demanding hard bargains — and they’re getting them. And I think that comes through in both of these reports,” he said.

“The [retail] volume number was relatively strong. But that’s cold comfort for the merchants. The only way they are moving the items is by keeping a very tight lid on prices.

“We’re seeing very little pricing power at the retail level. The overall spending number was only up 1.5% from a year ago, which is quite mild,” Mr. Porter said.

The influx of U.S retailers “has clearly played a role” in the weak prices levels, but mainly with pur- historically low borrowing costs, courtesy of the Bank of Canada — and steady themselves ahead of higher lending rates down the road.

But, notes Emanuella Enenajor at CIBC World Markets, “there’s a silver lining.”

“As prices fell, consumers were able to take home more without dishing out too much extra cash,” she said. “Overall, the month’s retail report suggests that consumers are down but not out, and that they continue to tread more softly in light of a weaker housing market and continuing caution in spending.”

As for businesses picking up the slack, surveys indicate they are also biding their time until they see signs of sustained economic recovery in Canada and elsewhere, especially in the United States.

Bank of Canada governor Stephen Poloz, in his inaugural speech and news conference on Wednesday, said businesses are being understandably “cautious” about their investment plans.

“Corporate Canada, like the rest of us, are unsure about the future,” he told a business gathering in Burlington, Ont.

Still, it is now down to Mr. Poloz and his policy team at the Bank of Canada to turn up the volume on investment.

Jo h n Curran, senior vicepresident of CanadianForex in Toronto, said businesses, whether in Canada or elsewhere, “have to lead the way.”

“Businesses have to go out and spend and get things moving. You don’t have to go hog wild,” Mr. Curran said. “But they do have the money. It’s out there. You can see it out there everywhere. All the earning, and all the data out there, the companies are sitting on some nice nest eggs.

“To get the confidence difference of the consumer back to where it should be, it definitely has to start with Canadian businesses.... Once the companies start doing it, people will do it and that will help the economy greatly. ”

This city of hustle and bustle was a ghost town Friday with empty streets due to the force of nature as Calgary’s rivers roiled and flooded as they surged from the mountains.

By 8 a.m., office, hotel and condo towers were dark and residents were advised to evacuate. Stores, offices, transit and schools were closed and cabs were few and far between.

Calgary’s crisis paralleled the disaster this week in global markets. Lightning struck signalling the financial storm when U.S. Federal Reserve chairman Ben Bernanke announced that Quantitative Easing, or printing mounds of money, may be slowed later this year.

That was bad news for cheap money fans, but for those who desire long-term sustainable growth it was welcome news indeed and will likely be gradual. Market hedge guru, David Tepper said on CNBC Friday interest rates would remain where they are until U.S. unemployment rates sink to 6%. So in that context, it’s not a catastrophe but a needed correction. Of course, that doesn’t make it any easier because markets took everyone prisoner: bonds, stocks, foreign exchange rates and currency values.

The weaning was inevitable because global economies cannot continue to function like this. So the good news is the Fed is confident the recovery is strong enough that tapering can be imposed to avert bond or other bubbles.

But there has been a cascading effect and other regional problems have arisen:

The U.S. dollar went higher, affecting the value of other currencies and a lowering in value of commodities.

The higher US$ and slowdown in China is also affecting the C$.

China, with still a galloping 6% GDP growth, is hobbled by worries about a debt bubble caused by China’s dramatic stimulus program since 2008.

Emerging markets tumbled due to lower growth prospects in Europe, China and elsewhere but also due to special circumstances in some coun-