Patricia Lovett-Reid

Who is the most important player in the global economic recovery? Barack Obama? Ben Bernanke? Maybe Chinese leader Hu Jintao? I would argue that it is in fact, the North American consumer.

The United States - the largest economy in the world - relies heavily on consumers to drive it forward. In fact, consumer spending accounts for about 70% of the Gross Domestic Product. If consumers spend, businesses expand and the economy grows. If they stop or slow their spending, sustaining growth becomes more problematic. Despite regular obituaries, the U.S. consumer has proved to be remarkably resilient. So what is the state of the consumer here in North America? I thought it would be a good time for a check-up.

The most recent data from Canada and the U.S. confirmed what is obvious to many: We're worried about the state of the economy. Job security in the U.S. eroded confidence, causing it to dip to a five month low. In this country, The Conference Board of Canada blamed July's drop in optimism on job security and income concerns. This was the case right across the country with British Columbia experiencing the biggest drop in confidence.

So how has all this unease affected consumers? According to a recent survey by Deloitte and Harrison Group, 80% of Americans surveyed are cutting back. Of that group, 55% say they haven't' been directly affected by the recession but are changing their spending habits anyway.

They are:

* Putting off purchases
* Staying away from brand names and moving toward generic or private label products
* Cooking from scratch rather than eating out or buying prepared meals.
* Some are cutting costs with a phenomenon called "extreme couponing" ( now has 2.5 million users) or taking advantage of loyalty programs at a variety of retailers.

Some economists have noticed an unusual trend. Consumers are splurging on high-end discretionary items while cutting back on the basics like detergent or toothpaste. Thanks to the iPad and the iPhone Apple's net income jumped 94 percent in the last quarter, while grocery store chain SuperValu's net-income fell 40% from a year ago. According to the International Council of Shopping Centers, dollar stores and luxury outlets are the only sectors not struggling. That big swath of retail that was the home of the middle class is still feeling the pinch.

People who study consumer psychology have noted that our brains lack a line that separates saving and spending. Instead, consumers practice a certain amount of thrift so they feel better about larger, more frivolous expenditures. The other thing psychologists have noticed is that while saving makes us feel good in the short term, consumers miss the spending outlet. The desire to spend builds up. It's difficult for most people to suppress their need to spend indefinitely. Federal Reserve Chairman Ben Bernanke is expecting that U.S. consumer spending will likely continue to grow in the coming quarters as wages rise and credit becomes less stringent.

Consumers switched to savings mode this spring. The American savings rate rose from 6.0% in April, to 6.3% in May to 6.4% in June. The story is a little different in Canada. Historically, we were the savers, Americans were the spenders. But Canada's personal savings rate fell to less than 3 per cent through the first quarter of 2010. Why the change? A lot of it has to do with a more positive employment picture on this side of the border.

So what conclusions about the North American consumer can we draw? According to the Deloitte/Harrison Group study they can be described as resourceful. When shopping, they are precise - taking advantage of savings whenever possible. One could also argue that the consumer is suffering from an identity crisis. They know they should be spending less, they're trying to save, but the desire to splurge can sometimes be overwhelming.

This is a crucial time. Next to the holiday season, back-to-school is a crucial season for retailers. By the time our children are back in the classroom, economists should have a better idea of who the consumer of 2010 is: the savings-be-damned big spender of earlier this decade, or the cautious coupon clipper of the past six months.

The global economy and investors will be watching closely.