July 14, 2014


Was it the weather?

The US economy took a bath during the first quarter. It is starting to look like the dip was just temporary.


Housing sector stakeholders are always looking at US data for signals as to how things will play out here. The United States is Canada’s largest trading partner, so America’s fiscal and monetary policy and consumer demand trends all inevitably spill over the border. Now it looks like Canadian forecasters will also have to watch US weather reports. 


The latest revisions to American economic data released late last month, show that that the country’s gross domestic product actually shrank during the first quarter by 2.9 percent.  Experts at the large financial institutions generally put a positive spin on the numbers. A typical response, by TD Economics, was to attribute the decline, which was concentrated in the personal spending and international trade sectors, to weather-related factors. The guess being that the quarterly decline was thus just temporary, and that things will bounce back during the rest of the year.


Others are not so sure. Peter Schiff for example, who is president of Euro Pacific Capital, ridicules the notion. He points out that while the United States did have its tenth worst winter in the last 50 years, if weather had been that serious a factor in the pullback, then the United States would have seen similar drops in other hard weather years.


Strong economic data

The debate over whether America’s sorry first quarter numbers are just a passing thing is no mere academic disagreement. If the economy is headed for a rough patch, as Schiff believes, than consumers would be better off putting all the money aside that they can to prepare for bad times. However if all is good, as financial institutions and government authorities seem to indicate, then we should be able to continue on our present course.


The good news is that while the authorities and big banks have considerable incentives to paint a rosy picture, the latest employment numbers, indicate that they may be right. The US economy created an impressive 288,000 jobs in June. That follows impressive performance in each of the two previous months.


Gross domestic product growth is tied to two major factors: the number of people working and how productive they are. As James Marple, a senior economist at TD Economics notes, the new numbers thus suggest that the US economy will indeed return to positive results during the second quarter. “The ongoing strength in job growth should put to rest any lingering doubts that the recovery is gaining traction,” he wrote in a recent note to the bank’s clients. “The trend is clearly accelerating and the number of industries adding jobs is broadening.”


The news in Canada was less good. The Canadian economy lost 9,000 jobs during April, following a strong 26,000 post gain in May. However there are a few silver linings. For one the Bank of Canada will be in no rush to raise interest rates if the economy remains this sluggish. That should please consumers and potential home buyers. Furthermore if more Americans are working and buying stuff, that will lead to more demand for Canadian goods.


That means companies could well be calling back some of those workers to fill those new orders.





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