June 17, 2009
Economy at a Glance — June 18, 2009
Key indicators point to better economic and construction prospects in the U.S. and Canada
Prepared by Alex Carrick, Chief Economist, CanaData
The United States economy appears poised for recovery and Canada’s economy is in a holding pattern, which is better than the free fall of earlier this year. The good-news indicators are tentative and fragile, but they are encouraging nonetheless. In the U.S., there are two key measures that look at how consumers are feeling and what is happening in manufacturing. These are published by the Conference Board and the Institute of Supply Management (ISM). In both cases, the primary yardsticks have turned up again over the last several months, after setting historical lows during the past winter.
The Conference Board’s May 2009 index of consumer confidence has risen again to its highest level since September of last year. The 5,000 households surveyed now indicate that they view the employment outlook as less negative than it was before. Furthermore, the number of respondents expecting business conditions to improve over the next six months has picked up considerably.
As for the purchasing managers’ index calculated by the ISM, the April figure was 40.1%. While this indicates that both the manufacturing sector and the overall economy are still contracting, the pace of decline has slowed significantly. The low point for the PMI was 32.9% in December 2008. The latest figure corresponds with a change in real (inflation-adjusted) Gross Domestic Product of only -0.3%. Manufacturers have reduced their inventories and new orders are starting to emerge.
Canada is seeing a number of recent indicators that suggest better news. For starters, employment in April increased after five months of declines. The jobs gain was mainly due to more self-employed individuals. Some further month-to-month employment declines are likely to be interspersed with some gains over the next six months or so. For example, car dealership closings as a result of the Chrysler and General Motors restructurings will move more workers into the “seeking employment” category.
Also, the number of individuals now receiving employment insurance benefits in Canada has climbed by more than one-third since last fall. But there are indications that this trend will soon moderate. Initial and renewal claims for benefits registered in March declined by almost 2% versus February. Initial claims are a leading indicator for actual changes in the labour force’s employment status.
Another positive for Canada is some commodity price movements. Copper prices have been on the rise and the world price of oil has almost doubled from its extreme low. The causes are supply constraints, China’s economic rebirth and better prospects for world and particularly U.S. growth. The offshoot is better news on the capital spending front.
Two examples immediately come to mind. Vale of Brazil is continuing to spend money developing refining capacity for its Voisey’s Bay nickel and copper deposit in Newfoundland/Labrador. And in the Oil Sands of Alberta, Imperial Oil has announced that it will be proceeding with its Kearl project at an estimated cost of $8 billion. Once the price of oil climbs above $80 USD per barrel, expect a number of formerly halted energy projects to be reviewed with an eye to resuming on-site construction.
For more articles by Alex Carrick on the Canadian and U.S. economies, visit his blog and Market Insights.
Purchasing Managers Index (PMI) – U.S. Institute of Supply Management (ISM) (seasonally adjusted)
*The solid horizontal lines show the benchmark levels of 41.2% and 50.0%. History has established that below 41.2%, both manufacturing and the overall economy are contracting; from 41.2% to 50.0%, manufacturing is contracting, but the overall economy is expanding; and above 50.0%, both manufacturing and the overall economy are expanding.
Data source: Institute of Supply Management/Chart: Reed Construction Data – CanaData.
