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Economic Nuggets – June 15, 2012

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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

This article sets out a dozen Economic Nuggets “ripped” from the latest data releases and media headlines.

The following are a dozen Economic Nuggets “ripped” from the latest data releases and media headlines. (1) The world economy is on tenterhooks waiting for Europe to sort out its problems. The vote in Greece on June 17 will determine whether or not that country stays the course with austerity OR wrings more concessions from the rest of the Euro-zone OR drops out of the Euro (2) Bailout money for insolvent Spanish banks has caused Moody’s to downgrade Madrid’s credit rating by three notches. Speculators are already targeting Italy as the next domino. The contagion is spreading. The EU’s response continues to be too little too late. (3) World trade issues aside, the U.S. recovery depends on an improvement in employment and housing markets. The May labor report recorded a net increase of only 69,000 in the number of American jobs. Also worrying is the fact initial jobless claims have been trending higher. (4) The U.S. unemployment rate in May rose slightly to 8.2%. When the U.S. economy is functioning close to full capacity, the unemployment rate can drop as low as 5.0%. (5) The U.S. remains nearly five million jobs below its previous peak employment level. Almost half of that number is due to the weak housing sector. If home starts were anything like normal (i.e., 1.5 million units rather than 700,000), there would be at least 2 million more jobs. (6) There is one encouraging labor market number that hasn’t been receiving much attention. Service sector employment, which makes up 80% of the total, has climbed back within one million of its former peak level. Accounting, hospitality and computer systems are the leaders. (7) U.S. housing starts are on a mild upward trajectory, but prices for existing homes continue to languish. The S&P/Case-Shiller 10- and 20-city composite indices in April were very low (-35% versus previous peak) and flat. Seven cities did record positive year-over-year increases. (8) The U.S. Consumer Price Index in May dropped 0.3% versus April. The year-over-year inflation rate was +1.7%. The month-to-month decline was mainly due to a 6.8% drop in the price of gasoline. Lower gas prices free up money to be spent in other areas. (9) U.S. retail sales in May were -0.2% month over month. That was the second decline in a row after April’s identical drop of -0.2%. March’s change was +0.4%. Year-over-year retail sales in May were still healthy at +5.7% with the auto and parts sector a bullish +8.3%. (10) Canada’s May employment level was unchanged after big increases in March and April (+140,000 combined). The immediate jobs outlook is tied to how well the U.S. does. Longer term, resource sector investment holds the key. Commodity prices world-wide are restrained. (11) Canada’s housing starts in May marked a return to sanity. After spiking at 244,000 units annualized in April, they dropped back to 211,000 in the latest month. The supercharged multi-unit market in Toronto fell by nearly half compared with the month before. (12) China is stimulating its economy. Interest rates have been lowered, plus the authorities are allowing banks to charge less than the going rate on loans and pay more for deposits. The latter is a move to attract more funds that are sitting idle as cash. Also, further infrastructure construction (e.g., steel mills and nuclear plants) has either been authorized or is planned. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

by Alex Carrick

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