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Alex Carrick

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Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

The most recent best news has concerned U.S. retail sales. In March, they were +7.1% year over year on an actual basis. On a three-month moving average basis, they were +8.1%. Some of the other news lately hasn’t been quite as favorable.

The most recent best news has concerned U.S. retail sales. In March, they were +7.1% year over year on an actual basis. On a three-month moving average basis, they were +8.1%. A figure +5.0% or higher is good news as long as year-over-year inflation is +2.0% or lower. The difference means real consumer spending of +3.0%, a strong base for the overall economy. The outstanding sectors in U.S. March retail sales were autos and parts (+10.0% actual and +15.3% smoothed) and non-store outlets (+12.4% actual and +14.0% smoothed). The latter category is particularly interesting to follow since it encompasses cutting-edge Internet sales. Some of the other news lately hasn’t been quite as favorable. U.S. initial jobless claims in the week ending April 9 climbed back over 400,000 after spending most of the previous two months below that figure. At a level of 412,000, net jobs are still being created, but not quite as quickly. During the recession, the number of first-time unemployment insurance seekers each week was higher than half a million. That’s the benchmark figure usually taken to mean the number of people being newly released from jobs is a match for those being newly hired. A figure of 400,000 on average for a month corresponds with about 100,000 net new jobs being created. The initial jobless claims numbers are broken down regionally. It was a good sign that one of the states with the largest decreases was California (-8,095). Two other big-population states, Texas (-2,913) and Florida (-1,731), also had significant declines in the number of first-time jobless. In Canada, new motor vehicle sales in February were a disappointment. The month-to-month change in unit sales, seasonally adjusted, was -0.6%. The year-over-year change was -5.4%. Passenger car sales in units climbed 0.4% month to month while truck, van and bus sales fell 1.5%. That left passenger car sales -12.6% year over year and truck, van and bus sales +1.2%. In the car-manufacturing province of Ontario, month-to-month sales were +1.4%, but that still left them -3.9% year over year. British Columbia was the standout province for motor vehicle sales. Its latest month-to-month change was +3.0%, helping to raise the year-over-year figure to +3.8%. B.C. was the only province to register a year-over-year gain in new vehicle sales. Several factors will combine to dim the short-term outlook for the motor vehicle sector. Aftermath effects of the Japanese earthquake and tsunami disaster – through power shortages and transportation bottlenecks – are playing havoc with the auto parts supply chain. The assembly operations of some Japanese auto firms are having to shut down for a while. Preferred methods for reducing production are to bring forward maintenance shutdowns, cancel overtime and ask workers to take vacations, sometimes without pay, in order to avoid layoffs. North American auto production as a whole is not as dependent on Japan-produced parts as might be supposed. Many parts for Japanese assembly operations in North America are either made by domestic firms or by Japanese parts firms that undertook investments to locate here. A second factor impacting auto demand will be the price of gas. At over $1.20 CAD per litre in Canada and nearly $4.00 USD per gallon in the U.S., many potential new car buyers may choose to delay their decision until the direction of gas prices becomes clearer. Or, given that the higher price at the pump will leave them with less money in their wallets each month, they may opt for a cheaper smaller new car that’s lighter on the gas or for a less-expensive used motor vehicle. Higher gas prices work to slow growth in the world economy in several ways. Consumers are inclined to become more cautious about all their outlays. Also, expenditures on gas take cash away from other purchases. Plus there is another factor that is important in developing nations. To dampen civil unrest, a number of the world’s poorer nations subsidize gas and heating oil prices on behalf of their citizens. When the world price of oil rises dramatically in an unexpected way, those governments are left scrambling to find the extra money to continue their subsidies. Their budgets are thrown off course. Deficits rise, leading to a greater need for borrowed funds. This is usually achieved by raising interest rates. In turn, the higher rates are a macro-economic reason to lower expectations for world-wide economic growth. India, Indonesia, Malaysia and Thailand are four countries well-known for heavily subsidizing gas and other fuel prices. The U.S. dollar was strongest versus an array of international currencies in March 2009. The first quarter of 2009, after October 2008’s stock market collapse, was when the world financial crisis came to a head. Investors everywhere sought shelter in the world’s one true reserve currency. Since then, the U.S. dollar has fallen 17% versus a trade-weighted basket of currencies. That understates the strain on Canada’s currency. The past two years, from March 2009 to the present, has seen an almost one-third appreciation in the value of the loonie versus the greenback. The U.S. Census Bureau publishes statistics on trade with other countries. Canada remained the number one trading partner of the U.S. in 2010 with 16.5% of the total, combining both goods exports and goods imports. However, China wasn’t that far behind, at 14.3%. Mexico (12.3%) occupied third position. Japan (5.7%) and Germany (4.1%) rounded out the Top Five. Number-one Canada stayed especially strong as a destination for U.S. exports. Almost one-fifth (19.5%) of U.S. goods exports made a beeline north in 2010. That compared with 12.8% going to Mexico and 7.2% destined for China. Actually, the size of the Chinese percentage share may be a little attention grabbing. The nature and degree of U.S.-China trade isn’t as one dimensional (i.e. flowing only from east to west) as many commentators and politicians often portray it to be. On the subject of goods imports, China is the major supplier to the U.S., now accounting for 19.1% of the total. Canada, which used to be number one, now ranks second at 14.5%. Mexico (12.0%), Japan (6.3%) and Germany (4.3%) hold positions three through five. These numbers are all crucially influenced by the currency values of the loonie, peso, yuan, euro and yen. 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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