North America’s consumer spending likely to witness demographic change

The province of North America has long benefitted from consumer spending, accounting for a majority of the region’s gross domestic product. While consumption spending contributed to more than two-thirds of the US economy, Canada reaped in almost half of the benefit.

Moreover, shift in demographic structure is a clear implication that there will arise sectoral performance only, with some sectors outperforming the others, as the taste and preferences of the existing population spread will change as well.

Relative outperformance is expected from the sales of durable goods (such as motor vehicles, furniture, and large appliances), and of medical services, the strongest performing category examined.

According to a corporate survey, consumer spending on both goods and services is expected to decelerate with the key exception of spending on medical services, which is expected to rise as much as 7 percent per year between 2016 and 2025. Borrowing patterns are also affected, with consumer credit growth expected to slow to about four to six percent on average in the coming decades.

Furthermore, aggregate borrowing witnesses a curved path as well. The parameter is expected to rise at a somewhat slower pace, with millennial borrowing only partially offsetting declines elsewhere in the population. Growth in real spending is expected to fall below 2.0 percent in both the US and Canada in the coming decade.

It is important to note that just as demographics are likely to result in a slower pace of consumer spending, in many ways this is a reflection of the outlook for the economy as a whole, as shifting demographics pull the economic cruising speed lower in coming years.

Meanwhile, Canada’s high household debt level poses risk before consumer spending, especially in the context of population aging. International experience suggests that if households enter a deleverag­ing phase, Canadian spending growth could reach as low as 1 percent per year on average for as long as four to six years.

The sudden twirl of demographics in North America had raised serious questions that threaten the near-term growth of the region. With the world economy already suffering the effects of Brexit, this added problem is a one of its kind to further pull the economic performance of the region.