Oh Canada! All Eyes Down South!
Canada's economic recovery, which appeared so strong earlier this year, seems to have hit a rough patch.
The country's gross domestic product was unchanged in April from the month before, Statistics Canada said Wednesday. Economists were expecting 0.2 per cent growth in GDP for the month.
That compared to a 0.6-per-cent GDP expansion in March.
It marked the first time in eight months that the Canadian economy did not expand and comes on the heels of 6.1- per-cent annualized growth in the first quarter of this year, the strongest expansion in more than a decade.
Statistics Canada said there was a "large decline" in the retail sector in April, and lesser contractions in manufacturing and utilities, which were offset by gains in mining, wholesale, the public sector and construction.
Statistics Canada said retail trade was down 1.7 per cent in April, as demand dropped sharply for items such as automobiles and clothing.
Manufacturing output fell 0.3 per cent in April, the federal agency said, the first decline since August of last year. Non-durable goods, such as pharmaceuticals and food, were cited as the main cause of the lagging figures. Durable-goods manufacturing industries saw increased activity.
Oil-and-gas extraction output was up 0.5 per cent in April and potash mining also saw gains, though output in mining sectors such as gold, silver and diamonds declined.
Economists, however, were not sounding the alarm bell in the wake of the economy's lack of growth in April.
"Overall, while this was a weak report, we expect Canadian economic activity to bounce back in the coming months as the combination of the strong momentum in labour-market activity and supportive monetary and fiscal polices continue to provide a favourable tailwind for Canadian consumer spending," said Millan Mulraine, strategist with TD Securities.
Dawn Desjardins, assistant chief economist with RBC Economics, said she expects GDP growth to resume in May and June.
But that's not to say it's all smooth sailing ahead.
Warren Jestin, chief economist of Scotia Economics, said while "the dreaded double-dip" recession feared by many is not likely to occur, growth in Canada and elsewhere is "at risk of slowing materially" in 2011 as governments start to focus more on cutting deficits than stimulating their economies.
Given the new austerity measures governments agreed to at the recent G-20 in Toronto, growth will slow, but it remains to be seen whether it is is "at risk of slowing materially" in 2011.
Canada's labor market remains solid. And if the US economic recovery continues, and more importantly, if job creation finally takes hold, then despite the focus on austerity, 2011 might not be such a terrible year.
On Thursday, Matt Philips of the WSJ MarketBeat reported that US manufacturing showed growth, but slower:
Stocks are taking a leg down after the June ISM data came in at 56.2 versus the 59 analysts were expecting. Anything above 50 on the index indicates expansion, so this means that the manufacturing sector was still growing in June, but at a slower pace. The closely watched new orders index weakened, falling to 58.5 in June versus 65.7 in May, but again that is still a number that signals expansion.
So here’s where we stand. It doesn’t look like a double dip recession is imminent. But at the same time, it may be that the fastest rates of growth during this recovery are behind us. It seems that the binary risk on/risk off reactions we’ve seen in the markets lately doesn’t quite know how to handle the prospects of a slow growth recovery. But alas, it looks like that’s what we’re facing.
I went over the ISM report, and it still looks good. Any reading above 50 on the overall index and sub-components signals expansionary activity. Of course, rates of change are slowing, but that is normal given some of the components saw extraordinary high readings as of the last few months. People get excited over nothing without understanding how to properly read economic indicators. Again, a reading over 50 signals expansion. Period.
Finally, on Friday morning we await yet another US jobs report. Laurent Beslie of the Christian Science Monitor reports, US outlook for jobs darkens:
The signals for US workers are not looking very positive.
On Friday, the Department of Labor will release its estimate of how many jobs the US economy created or lost last month. The data so far suggests that the number isn't going to be very cheerful.
On Thursday, for example, the number of Americans filing first-time claims for unemployment benefits jumped back up 13,000 to 472,000. The closely watched four-week average now stands at a three-month high.
A day earlier, a private-sector survey of the job market suggested that nonfarm private employment rose by only 13,000 in June after rising 57,000 the month before. That report, from the ADP National Employment Report, was actually more bullish than the official May figures from the Labor Department.
"We're clearly in a soft patch," says Stephen Wood, chief market strategist in Russell Investments, a global financial services firm based in a Tacoma, Wash. "The recovery is not going to be this V-shaped snapback. It's going to be more like a grind."
Friday's official unemployment numbers are expected to look especially bad because the Census Bureau is beginning to let go of the hundreds of thousands of temporary workers it had hired for its census-taking operation.
But the private sector could still see a jump of 100,000 or more jobs. By historical standards, that would be a tepid rise this far into a recovery.
Most analysts expect hiring to be weak, but I have a feeling tomorrow's non-farm payrolls report will surprise to the upside. I've been burned a few times before making these predictions on US job creation, but this report should confirm a pick-up in job creation. Let's wait and see the details.
Finally, I hope all Canadians enjoyed Canada Day. We are blessed to live in this great country of ours. Below, a small sample of Canada's treasures. Enjoy.