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Increasing signs of world and U.S. economies getting back on track

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Alex Carrick

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Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

There are increasing signs that the world and U.S. economies are getting back on track. One indicator is the subject matter in daily news briefs.

There are increasing signs that the world and U.S. economies are getting back on track. One indicator is the subject matter in daily news briefs. For example, there is a big debate currently underway in the U.S. about whether or not there will be a new “normal” for U.S. real (inflation-adjusted) gross domestic product growth. Due to lagging labor markets, some economists are saying that +2.0% is all that can be achieved. An increasing number of others are more optimistic – based on population growth and productivity increases – citing +2.5% to +3.0% as achievable.

The 0.5 to 1.0 percentage point variance makes a huge difference over a period of several years in terms of national output. In the current context, it is particularly important with respect to paying down Washington’s $1.4 trillion budget deficit. More growth means more tax revenue.

Companies are increasingly behaving as if they have every confidence in the future. In the struggling flight passenger industry, Japan Airlines (JAL) has just declared bankruptcy. However, this is not deterring Delta and American Airlines from making bids to acquire a portion of the new company that will emerge from the restructuring process.

In another huge corporate ownership change, Kraft has bought Cadbury, after being forced to up its bid. In this instance, neither of the other two most-likely rival challengers to take over the company, Hershey’s or Nestlé, could be enticed to submit more favorable offers.

Orders in the U.S. economy are increasing while inventories remain quite low. Durable goods orders in December, exclusive of transportation, were +0.9% ahead of November. Transportation includes some lumpy categories, such as airplane purchases, that can be highly volatile. Manufacturers, generally, are ramping up production both to meet new orders and to restock.

Nevertheless, the improvement in overall activity levels is continuing measured and slow in some key regards. Initial jobless claims in the latest week dropped to 470,000 from 478,000 the week before. Both of these figures are below the half-million level which usually stands as the benchmark for when firms are neutral on firing versus hiring. Nevertheless, 470,000 is still well above the 300,000 figure that is more typical when the economy is functioning at potential.

For the first time in its recent meetings to set interest rates, one member of the Federal Open Market Committee (FOMC) dissented about maintaining the federal funds rate so low (0.0% to 0.25%). Kansas City Federal Reserve Bank President Thomas Hoenig came out in favor of an early upward adjustment in rates on the grounds of self-sustainability of the current recovery. Less certainty about the risk of inflation remaining innocuous was another factor in his stance.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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