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Web exclusive, January 2006 The McKinsey Global Survey of Business Executives : Confidence Index,
Economic confidence is up worldwide but varies from country to country, notably in the booming economies of China and India.
2006
for Wed1278 (Aug 30, 2006)
U.S.
The economy may already be in the hard landing scenario with second quarter G.D.P announced today at 2.9% growth following 5.6% in the first quarter. The housing market is crumbling with housing starts declining nearly 17% in the last three months to the lowest levels in almost two years. New home sales have declined over 7% in the last two months, the inventory of unsold new homes is at a record high, existing home sales have tumbled almost 8½% since April and almost four million homes are unsold, a seven year high. The housing supply is equivalent to almost seven and a half months. Consumer confidence has declined sharply to a nine month low. Employment in the second quarter and July has only averaged 115,000 and unemployment has returned to 4.8%, a five month high. Durable goods orders decelerated by 2.5% in July and factory orders could decline 1% when published tomorrow. Real hourly earnings have eased 1.1% in the last two months and productivity increased by only 1.1% in the second quarter following 4.3% in the previous quarter. New vehicle sales plunged 17½% in July and Ford announced a cut in production of 20% in the fourth quarter. Leading economic indicators were negative in July and declined 1.4% in the last six months, the worst since February, 2001. Business investments in equipment in the second quarter weakened for the first time in three years. Service spending has weakened since April. On the positive side, manufacturing has held up fairly well, imports have abated and exports were record in June, the fiscal deficit has been revised down by $58 billion to $260 billion. The Fed, on September 20, will likely stay steady at 5¼%. They are still worried about inflation “but inflationary pressures are contained and core inflation was likely to decline gradually over the next several quarters.” “The full effect of previous increases in interest rates on activities and prices probably had not yet been felt and a pause was viewed as appropriate to limit risks of tightening too much and hurting the economy.” “The slowdown in the housing markets, the effects of high energy prices on household purchasing power, the waning impetus of household wealth effects on consumer spending were expected to hold economic growth below potential over the next six quarters,” they said in the last minutes of their August 8 meeting. The stock market will be supported by the strong earnings outlook for the second half (+14%, +15%) for the thirteenth consecutive quarter of double digit growth, the highest share buyback in over ten years ($117 billion in the second quarter, up 43% in the year and 175% in the past two years) and the likelihood of lower commodity prices. Profit margins are at a fifty year high and S.P. 500 price earning ratio below 14 times over the ten year low.
CANADA
The Canadian economy is also softening and the G.D.P. for the second quarter, when released tomorrow, should provide evidence of that after a strong 3.8% growth in the previous quarter. Retail sales have declined nearly 1% in May and June despite the cut of 1% in the G.S.T. The wholesale sector saw its second decline in three months. Building permits were down 1½ % in June and existing home sales have been flat in the last six months. Employment in June-July of only 11,000 people was a disaster and unemployment has returned to 6.4% following a thirty-two year low. On the positive side, June and July leading economic indicators were positive, led by consumer spending (housing related) and durable goods. Manufacturing shipments rebounded by almost 2% in June and the trade surplus improved by almost $1 billion since April at $4.8 billion with exports rising 1.1%. New housing prices continued rising by almost 1½ % monthly in the last twelve months. Inflation has stabilized under 2½% with core on target at 2% despite soaring prices for gasoline and commodities. The Canadian dollar will likely exceed its May 31 high (91.44¢) supported by record foreign takeovers, narrowing interest rate spreads with the U.S. and close to record corporate profits which led the T.S.X. to a 1,165 gain since June 13.
Monday 28 August 2006 globe Bernanke warns against protectionism
“Geopolitical concerns, including international tensions and the risks of terrorism, already constrain the pace of worldwide economic integration and may do so even more in the future,” he said.
Mr. Bernanke's remarks come as trade tensions have heightened between the United States and China and global trade talks have recently stalled. Americans have grown increasingly anxious about the potential to lose their jobs to competitors in China and India, two quickly emerging economic giants.
nyt Global Trends May Hinder Effort to Curb U.S. Inflation Economists said global trends of low-priced Chinese goods and foreign investment in the U.S. and Europe could soon change, increasing inflation.
Saturday 29 July 2006 nyt Eonomy Slowed This Spring
By EDUARDO PORTER
Economic growth braked sharply in the second quarter as the housing market cooled and consumer spending pulled back.
for Wed1271 (July 12, 2006)
CANADA:
As he had indicated in June, David Dodge, Governor of Bank of Canada, held a steady monetary policy “as inflation is under control and as interest rates are as high as they need be.” They have signalled “that they will stay on hold for the foreseeable future.” He sees “the economic growth a little weaker than the 3% projected for next year and the 2.9% growth initially forecast for 2008 as a result of the Canadian dollar strength and expected slowdown in the U.S. economy.” The Bank had seven consecutive increases to 4¼% and nine increases in two years for 2¼% rise. It sees “core inflation staying steady at 2% a year until the end of 2008, although total inflation will likely drop to a pace of about 1.5% over then next year because of 1% reduction in the G.S.T.” They are also “worried about the potential weakness of the trade surplus.” The overnight rate is “judged at this time, to be consistent with achieving the inflation target over the medium term.” The negative June employment data, the narrowing trade surplus in April-May, the declining exports in the last five months (-8.2%) and the near recession in manufacturing, certainly impacted on the decision. The updated Monetary Policy Report will be published tomorrow. After a record 12,998 on April 19, the T.S.X. lost 1,600 points as of June 13 and has recovered 867 points since, to 11,771 as of the close today. Since October, 2002, commodities had gained, 133% (aluminium) 180% (crude) 185% (gold), 240% (silver) and 430% (copper). As of mid-June, copper lost 20% since its May 10 record, aluminium lost 20%, silver, 28%. Gold lost over $66.00 to $566½ from its twenty-six year record of $722.00. Crude oil lost $7.00 to $68¼. The Canadian dollar, after trading at a twenty-eight year record high of 91.44¢ U.S. on May 21, is trading at 88.12¢ U.S. with the decline in key commodity prices and the Central Bank neutral decision. The T.S.X. has traded at over 11,800 yesterday, a five week high.
U.S.
The Federal Reserve tightened monetary policy on June 29 for the seventeenth consecutive time since June, 2004, for a five year high federal funds rate of 5¼% as they are increasingly concerned about inflation expectations (although contained for now) as economic growth is moderating in the second quarter after the fastest pace in 2½ years for the first quarter (5.6%). The cooling of the housing market is reflecting the lagged effect of the increase in interest rates and energy prices. Productivity gains have held down unit labour costs. Bernanke suggested that inflation was the “biggest risk to the economy.” Total C.P.I. is up 4.2% in the last twelve months and producer prices, 4½%. Core C.P.I. at 2.4% is over internal targets. The economy is running at 81.7% capacity utilization and above its non-inflationary potential. Second quarter G.D.P. will probably ease to 3% growth, given weaker employment data since April (new job creation averaging only 113,000 monthly). The manufacturing sector is weakening with factory orders down 1.3% (April-May). Declining I.S.M. manufacturing in May-June (-2½ points) and durable goods orders weakening by 5% (April-May). The services index has declined 6 points in May-June. The Conference Board consumer confidence index is down seven points in the second quarter and Michigan down five points in May-June. May’s retail sales were nearly flat. Hourly earnings in June reached 3.9% (year), a 3½ year high. The housing sector was mixed in May-June, new home sales jumped 9.5% and existing home sales weakened by 3%. The housing supply is up 6%. The trade deficit has stabilized between $62 billion - $64 billion monthly, the current account deficit improved by $14 billion to $209 billion in the first quarter and the fiscal budget deficit for 2006 revised down by $127 billion to $296 billion, given strong corporate profits and earnings by individuals. After a 15% rise in the first quarter earnings, the second quarter expected at 12%will be the twelfth consecutive quarter above 10%. After reaching a five year high at 11,643 on May 10, the Dow-Jones lost 836 points by mid-June and has since recovered almost 200 points to 11,023 by the close today. The Fed has indicated that they may take a pause at their next meeting on August 8. June inflation date to be published next week will influence that decision.
- Click for Video Page 1 clip 15 3:38min |
,page 2 clip 16 2:38 min
- Canadian Dollar: 88¢us to 89¢us
- Euro:$1.27 - $1.29 U.S.
Crude Oil $75 U.S. - $77U.S.
- Dow-Jones: D.J.: 11,100 to 11,200
- The T.S.X : 11,900 to 12,100
- Gold:- futurs $650 U.S. -$675 U.S.
- video on 1275wmv Peter Perkins Mkt 320x240.htm
 Stephen S. Poloz VP EDC Economics Weekly Commentary
Market Action Symptomatic of Rising Global Risks - June 14, 2006
It’s never a good sign when stock markets make the front pages day after day. When stocks are going up daily, shattering old records, the feeling of bliss is tarnished by a growing worry that all is not quite right. In contrast, when stocks are plunging, well, people are just plain worried.
Past issues
Martin T. Sosnoff 06.15.06, Assume the worst: Ben Bernanke, the new Fed chief, wants a mini-recession. The Fed needs to see more indicator cards turn up before it changes policy emphasis. It craves respect as an inflation fighter, longs for a positive yield curve and ponders the parabolic bubble in oil and metals.
for Wed1267 (14 June, 2006)
INTERNATIONAL:
Three Month Outlook: for 14,June , 2006 last week
DivX
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Saturday Jun 10, 2006 Canada's Real Trade Surplus Has Turned into a Deficit
The 40% appreciation of the Canada-U.S. exchange rate since 2002 has turned Canada's real trade surplus into a deficit, forcing a profound structural change in the economy.
Canada is well known for enjoying large current-account surpluses—3% of GDP in the first quarter—thanks to sky-high commodity prices. What is less known, however, is that the 40% appreciation of Canada's currency relative to the U.S. dollar since 2002 has completely erased its trade surplus on a volume, or price-adjusted, basis. Relative to the size of the economy, the other (real) trade balance fell from 5.5% in 2002 to -0.6% in the first quarter. Fortunately, domestic demand has stepped in to fill the void. The fact that Canada is at full employment despite such a structural shift speaks volumes of the kind of adjustment that has taken place over the past four years.
Sunday Jun 4, 2006 rci Statistics Canada reports that the economy has been creating an increased percentage of jobs for the past 13 years, a longer period of job creation since the 1960s and 1970s. The federal agency reports that jobs grew during that 13-year period at an average of two per cent a year. StatsCan says that last year more than 17 million Canadians were employed, 67 per cent of those in a position to do so.
JACQUES CLÉMENT: REPORT ON THE ECONOMY
for Wed1265 (May 31, 2006)
INTERNATIONAL:
Video Page 1 clip 15 3:38min |
,page 2 clip 16 2:38 min
Canada
After losing over 1,000 points since its all time high of 12,488 on April 19, the T.S.X. recovered 320 points in the latest week, supported by crude oil, rebounding $1.50 U.S., trading above $72.00 U.S. and gold, rising $5.00, being traded at over $650 U.S. This also led to the Canadian dollar firming 1.50¢, trading today at a new twenty-eight year high of 91.44¢ U.S. as first quarter G.D.P. rose 3.8%, stronger than market expectations (3%) and Bank of Canada’s estimate of 3.2%. It was broad-based, with strong housing numbers including a decline of 13% in March, strong consumer spending (+5%), business investments and net exports added to the expansion, with solid domestic demand (+5%) strongly offsetting the effect of the stronger dollar. The first quarter current account surplus of $10.7 billion, despite declining $2.6 billion from the record previous quarter, was still the third largest ever. The decline was mainly attributed to the decline of $3.3 billion to $17.2 billion in the trade surplus, due to the decline in volume of energy exports, mainly lower natural gas prices and the strengthening currency. This was offset, in past, by declining interest and payments to foreigners as Canadian debts have declined significantly. Foreigners bought $8.2 billion of Canadian equities in the first quarter, but reduced their direct investments by $3 billion to $12 billion. The Canadian dollar is also supported by record merger and acquisition activities, mainly in the mining and energy sectors that totalled $166 billion last year, the highest in six years.
U.S.:
After losing 525 points since its six year high of 11,643 on May 10, the Dow-Jones recovered 50 points in the latest week, as first quarter G.D.P. was revised upward to 5.3%, the fastest pace in 2½ years, given stronger exports and inventory building. April economic data were mixed to negative, with new home sales rising by almost 5%, its fastest pace this year, but existing home sales weakening by 2%, with rising mortgage rates (over 6¼% ) and inventory of unsold homes at a record high. Personal income and consumption rose by 0. 5%, but the University of Michigan and the conference Board consumer confidence faltered 7 to 8 points to the lowest levels in seven months. Current confidence fell the most since 1978 as gasoline prices were near record levels. Durable goods orders weakened by almost 5%, given weaker aircraft orders. Core personal consumption inflation was under 2.1% (year over year), the biggest increase since March 2005. Housing prices saw the smallest increase in four and a half years. The U.S. dollar was weaker over the week, with the Euro trading at $1.2867 U.S. and ¥112.20.
- Video Wed 1266 June 7th Perkins Perkins Page 1 aprox 3:38min
- Click for Video Page 1 clip 15 3:38min |
,page 2 clip 16 2:38 min
- Canadian Dollar: 88.75¢us to 90.75¢us
- Euro:$1.28 - $1.30 U.S.
Crude Oil $70.00 U.S - $72.00
- Currency Strategists for Forex Capital Markets (FXCM)
- Dow-Jones: D.J.: 11,000 to 11,200
- The T.S.X : 11,350 to 11,450
- Gold:- futurs $625 U.S. -$670U.S.
Three Month Outlook: for 6, 6, 2006
for Wed1264 (May 24, 2006)
Canada
Despite very stable core inflation (1.6%) since August last year, declining trade surplus ($5 billion from $7.7 billion) due to weaker exports (down 5.7% in the first quarter), the first trade deficit in real terms since 1970, weaker housing starts (-13% in March) and existing home sales in April -3.2% and the loss of 165,000 manufacturing jobs in the last twelve months, Bank of Canada, today, tightened monetary policy by ¼% for an overnight rate of 4¼%, for the seventh consecutive increase, as the economy is operating near full capacity, domestic demand has been very strong, employment is booming (over 123,000 jobs have been created in the last four months with 6.4% unemployment, near thirty year low and skilled labour shortages), consumer spending remains strong (retail sales +2½% in the first quarter, with new vehicle sales +2.1% and wholesale sales stronger by 1% in March). Manufacturing shipments also rebounded by 1.1% in March and unfilled orders were at the highest level in three years. The T.S.X. lost another 217 points this week for a cumulative loss of over 1,000 points from its all time record of 12,488 on April 19. In March and October last year, the T.S.X. lost respectively, 720 and 1,000 points. Since 1981, there have been twelve major corrections including four between 7½% and 8½%, four between 10% and 18%, two between 20% and 23%, with the largest in October, 1987 (Black Monday -22.6% and August, 1998 with the Russian and Asian crises, -20%), with gold off over $54.00 over the week, the Canadian dollar weakened to 89¼¢, as Bank of Canada might have reached neutrality and may take a pause in July. It has reached 90 3/8¢ U.S. on May 2 for a twenty-eight year high. Crude was up marginally over the week.
U.S.
With economic growth preliminary first quarter data to be published tomorrow and expected to be revised up by 1% to 5.8% from the advance number and year to date inflation having risen to over 5% annual rate and core at 3%, with April rise of 0.6%, the biggest jump in three months, the Federal Reserve is likely to increase its Federal funds rate by ¼% for the seventeenth time on June 29. The discount rate will be at 6¼% for the ninth time in history and the prime rate will be increased to 8¼%. Personal consumption inflation will be scrutinized when released for April on Friday, as well as the personal consumption number which was up almost 2% in the first quarter. Ben Bernanke, the Fed’s Chairman, in a speech in Chicago yesterday, has reiterated that further firming of interest rates may be needed to cool off the economy. He predicted that the housing sector will land softly, given overall strength of the economy, but with rising mortgage rates (thirty year at 6.60%) and affordability becoming more difficult, slowing housing sales and prices not rising as quickly, but in a very orderly fashion. He sees the labour market as strong with 700,000 new jobs created in the last four months, with 4.7% unemployment, the lowest in 4½ years. Income is rising (up 1.8% in the first quarter). He expressed concern over the proliferation of non-traditional mortgages, which represented 30% to 40% of all new mortgages in 2005. The Dow-Jones only lost 89 points to 11,117 in the latest week as the U.S. dollar weakened against the Euro at $1.2845. The Dow-Jones has lost 526 points since its six year high of 11,643 on May 10.
Video Outlook [2:45 min] 21 May
- Click for Video Page 1 clip 15 3:38min |
,page 2 clip 16 2:38 min
- Canadian Dollar: 88¢us to 90¢us
- Euro:$1.28 - $1.30 U.S.
Crude Oil $69.00 U.S - $71.00
- Dow-Jones: D.J.: 11,100 to 11,300
- The T.S.X : 11,100 to 11,600
- Gold:- $600 U.S. -$650U.S.
The markets and the world economy
Bears in the woods
IF YOU meet a bear in the woods, try not to panic or scream; on no account should you turn your back and run. As markets around the world have turned grizzly over the past two weeks, some investors seem to have forgotten the old hikers' maxim. After three years of big gains, many stockmarkets have tumbled by 10% or more in less than ten days. The loudest growls have echoed around emerging markets and commodities. Europe has surrendered most of this year's gains. Americans have so far escaped lightly, but they would be unwise to take comfort. Their housing market, the recent rock of their economy, is where a much grizzlier creature lies in wait.
Friday May 26, 2006 Feds post whopping $12 billion budget surplus
The federal government has posted a whopping $12-billion budget surplus for the fiscal year that ended March 31.
JACQUES CLÉMENT: REPORT ON THE ECONOMY
for Wed1263 (May17, 2006)
INTERNATIONAL:
U.S.:
After reaching a six year high on May 10 at 11,643, the Dow-Jones has tumbled almost 450 points, despite crude oil declining $6.70 since April 21, as inflation concern is rising (consumer price in April is up 0.6% (+3.5%, year/year) and producer prices up 0.9% (4% for the year), the largest increase in seven months). The Federal Reserve is likely to tighten by another ¼% to 5¼% on June 29 for the seventeenth consecutive increase since June, 2004. Retail sales increased 1.1% in March-April but there are concerns that consumer spending is likely to slow down, given record energy and material prices and increasing interest rates (thirty year mortgage rates over 6½%). The trade deficit, surprisingly, improved by $3.6 billion to $62 billion but remains a major concern as do record current account and fiscal deficits. The housing market continues to weaken significantly, with housing starts declining another 7.4%. After increasing by 14½% in January, starts have weakened by 23% in the last three months, the worst decline since November, 2004. Existing home sales weakened by 1.5% in the first quarter and prices declined for the first time in fifteen years. Other factors affecting the market include the record low approval of the President, the Senate Republican scandals and geopolitical uncertainties in Iraq, Iran, Afghanistan, Middle East, Venezuela, Nigeria and Ecuador.
Canada:
From its all time record high of 12,485 on April 19, the T.S.X. has lost close to 850 points in the last month given the steep price correction in commodity prices, as crude oil prices declined $6.70 to $68.67, gold by $31.00 from its twenty-six year high of $721.50 and other commodities by 8%-9% from record highs reached one week ago. It started with the International Energy Department revising down the growth demand for crude, the third reduction in four months and consumers retrenching when gasoline went over $3.00 U.S. per gallon and U.S. Department of Energy increased oil and gasoline inventories. Hedge funds were major sellers. New vehicle sales rebounded in March by 1.1% and manufacturing shipments by 1.5% as unfilled orders reached the highest level in three years. Wholesale sales declined 1% and inventories weakened. Existing home sales declined 3.2% , mainly in Vancouver (18%) and Toronto (5½%). Mortgage rates continue climbing with the five year at 6.95%. The Trade surplus narrowed by $800 million to $5.1 billion as imports climbed 3.6%, while exports strengthened by 1.1%. First quarter trade surplus was revised to $17.1 billion. Consumer confidence (March) strengthened. Foreigners bought an additional $9.2 billion of Canadian securities in March, evenly divided between bonds and stocks, for $17.6 billion in the first quarter. As for Canadians, they bought $3.3 billion of foreign securities in March, including $4.7 billion fixed income securities and liquidated $1.4 billion of foreign stocks. For the first quarter they bought $8.9 billion of foreign securities. The net purchase of $9.2 billion in March by foreigners did not prevent a decline of two cents on the Canadian dollar in March.
Bank of Canada will likely increase its overnight rate next Wednesday by ¼% to 4¼ % for its seventh consecutive increase and its highest since September, 2001.
Three Month Outlook: for Wed May 24, 2006
- Canadian Dollar: 88¢us to 90¢us
- Euro:$1.27 - $1.30 U.S.
Crude Oil $67.00 U.S - $70.00
- Currency Strategists for Forex Capital Markets (FXCM)
- Dow-Jones: D.J.: 11,100 to 11,300
- The T.S.X : 11,500 to 11,750
- Gold:- $650 U.S. -$700U.S.
Monday May 22, 2006 Market reversal may soon be over
For many a small investor, the past week or so has been a scary experience, with stocks in Canada, the U.S. and Europe suffering the biggest drop in years. But they might take solace in the fact that for some professionals, today's outlook doesn't seem all that bad.
EDC economist warns a correction is due
The world economy has been growing too rapidly and is due for a correction, which will put downward pressure on the price of oil and metals as well as the Canadian dollar, the chief economist at Export Development Canada warns. see wn on Stephen S. Poloz
Saturday May 20, 2006 Dip in core inflation takes pressure off interest rates
A drop in core inflation has given central bank governor David Dodge a convenient way to put an end to interest rate hikes without looking like he is bowing to pressure from the surging Canadian dollar.
JACQUES CLÉMENT: REPORT ON THE ECONOMY
for Wed1262 (May10, 2006)
INTERNATIONAL:
U.S.:
The Federal Reserve increased its Federal funds rate by ¼% to 5% today, for the sixteenth consecutive increase since June, 2004 to the highest level in more than five years and indicated that further firming may be needed with increasing inflation risks caused by record energy and metal prices. The Fed also indicated that they may take a pause to assess the impact of the rate hike. Total inflation has risen to 3½% and wages have risen by 3.8% (year), its fastest pace since mid - 2001.
The economy grew by a strong 4.8% in the first quarter, its fastest pace in 2½ years and the second quarter is expected at over 3%. It is being revised up to 3½% for the year. In the first four months of the year, nearly 700,000 new jobs have been created with 4.7% unemployment, the lowest in 4½ years. The manufacturing sector is surging and productivity rose at 3.2% annual rate in the first quarter. Spending in services has continued very strong. Department store sales rose 6.6% in April, the biggest rise in two years.
The housing sector is in a deteriorating state with housing contracts to purchase existing homes at a two year low and with rising mortgage rate at 6.58% for thirty years, the highest since November, 2002, with signed pending sales contracts down six percent for the year, the sixth monthly decline in the last seven months, with big inventory of homes on the market, equivalent to 5½ months and mortgage applications the lowest in the last 4½ years, with soaring fuel costs. Buyers are even abandoning their deposits to cancel their contracts.
The March trade deficit is expected at $67 billion, a rise of $1.3 billion with strong imports.
Canada:
With the Canadian dollar having traded at ninety-one and one eighth cents, a twenty-eight year high, with over 165,000 jobs lost in the manufacturing sector since 2002, profit margins having been squeezed, declining exports in January and February (-6.8%), declining shipments and orders, the Central Bank with only 1.7% core inflation, stable for the last seven months, will be under severe pressure to take a pause on May 24 after the sixth consecutive increase since September, 2002, to 4% overnight rate on April 25. Besides the daily pressure from manufacturers and exporters, the Bank has been highly criticized by the Premier of Ontario and the Finance Minister of Québec.
On economic data this past week, building permits were surprisingly strong in March (+5.3%) but housing starts were down 13½% for April and new vehicle sales declined 5% in April. Overall job creation is rising at a 30,000 monthly pace and unemployment at 6.4% is at a nearly thirty year high and crude is $3.00 U.S. away from its high of $75.35 (April 21), up over 40% on the year. Copper, zinc and platinum are at record highs, aluminium at an eighteen year high.
Three Month Outlook: for Wed May10, 2006
Friday May 12, 2006 Fed Raises Rates Again but Clouds Next Move The Federal Reserve raised short-term interest rates again on Wednesday, its 16th increase in two years, and gave itself room to raise them again in June. WN more%
Thursday May 11, 2006 America's markets responded skittishly to comments by Ben Bernanke, rallying after the chairman of the Federal Reserve signalled that the policy of raising interest rates was over and falling in response to a later report that he thought his comments had been misunderstood. Pundits made inevitable comparisons with Mr Bernanke's predecessor, Alan Greenspan, who made a point of never being understood.
Diana Thébaud Nicholson
Sunday May 7, 2006 target="_" >Canadians upbeat about the economy
Canadian consumers and businesses are upbeat about the economy, reflecting optimism among consumers about their job prospects and suggesting businesses are adjusting to the strong dollar, the Conference Board of Canada reported Friday.
Harper hits homerun with budget, says pollster
The Harper government scored a major coup with the federal budget this week in its efforts to put together a majority victory in the next election, a CanWest poll reveals.
JACQUES CLÉMENT: REPORT ON THE ECONOMY
for Wed1261 (May 3, 2006)
INTERNATIONAL:
Canada:
Despite core inflation at a modest 1.17%, the tightening effect of a twenty-eight year high (90¾¢) for the Canadian dollar, the loss of 182,000 manufacturing jobs since the end of 2002, declining shipments (-3%), new orders (-2%), exports (-7%) in the first two months of the year, Bank of Canada is likely to continue increasing its overnight rate twice to 4½% before taking a pause. The Governor has indicated clearly, his intentions “as the global economy is growing at a robust pace (the I.M.F. now sees 4.8%, with China at 9½%, U.S., 3½%, Canada 3% - 3½%, Japan, over 3%, India 6% and 5½% growth in Singapore, Argentina, Venezuela and Chile”. Dodge views “The Canadian economy operating at or just above its production capacity and with higher prices for many commodities, including record energy prices and he is worried that inflationary pressure might develop in the economy despite downward pressure from prices of imported consumer goods. The semi-annual monetary policy report was rather hawkish but he views “the risks that the U.S. dollar and economy will topple because of the record current account deficit as dissipating”.
Canada has seen a sharp increase in its terms of trade. The monthly trade surplus is still above six billion dollars as imports have been declining (-4.6%). Productivity has been revised up to 2.2% for 2005 against 2.7% for the U.S. Employment has remained very strong (over 100,000 new jobs in the first quarter). Capacity utilization is near 85%. Corporate profits are rising at 20% - 25% annual rate, the strongest in fifty years. Capital investments in machinery and equipment are very strong. Despite weak new vehicle sales, consumer spending has been fairly robust.
The housing market has remained strong with starts up 4% in March, the highest since August, 2004 and existing home sales reaching a record level in the first quarter, with prices up 11.5% in the last twelve months. Foreigners continue to buy Canadian stock (nearly $9.5 billion in January-February). The budget was viewed as “slightly contractionary” by Dodge, but the private sector sees it generally from fairly stimulative to a huge fiscal stimulus (Conference Board) adding 0.7% to economic growth this year and next.
U.S.
After G.D.P. growth of 4.8% in the first quarter, the rise in commodity prices, particularly energy, has pushed total inflation to 3½% but, despite core, C.P.I. and consumer spending, inflation remaining at 2%, The Federal Reserve will increase federal funds rate by ¼% next week to 5%, as the economy is running way over its non-inflationary potential. The two day meeting in late June could lead to a pause, but Bernanke has precised that he is not finished lifting interest rates after telling Congress that “they could take a pause in their tightening mode and even turn a blind eye to inflation pressures, at least temporarily, as they assess how the past fifteenth consecutive rise in federal funds rate, the longest in twenty-five years, is affecting the economy.”
They are “basically trying to create some flexibility.” He expects the economy to slow down to a more sustainable pace later this year. “If energy prices stabilize this year, even at a high level, their adverse effects on both growth and inflation should diminish somewhat over time,” Bernanke said. He expects “housing to unwind in an orderly way but the risk exists that a more pronounced slowdown could be a drag on growth this year and next.” He thinks that the record current account deficit will be resolved gradually over time, but there are risks of a sudden shift in sentiment that could be disruptive for the U.S. dollar. His outlook for inflation was reasonably favourable, given core inflation having been stable over the past year and longer term inflation expectations fairly stable. Employment has been very strong with 600,000 new jobs created in the first quarter.
The manufacturing sector is surging with durable goods orders up 8% (February-March) including fac |
weekly or 
BBC
Jacques Clément 
Finance Minister Jim Flaherty tables the budget