This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

Go to Alex Carrick's blog home

Construction Industry Forecasts

Notes from Alex Carrick - Dec 02, 2010

Alex Carrick
Lots of baby steps forward in the U.S. are starting to yield real progress

Better news on the U.S. economy has been accumulating of late. For example, in the early days of December, the three major U.S. stock market indices reached their highest levels in more than two years. One has to look back to September 2008 to see similar index values for Dow Jones Industrials and the S&P 500. NASDAQ hasn’t been as high since December 2007.

Profit strength (+28% year over year in the third quarter), achieved through productivity advances, has been the major cause of equity price climbs in the U.S. The Toronto Stock Exchange has improved to a similar degree in Canada, but the spur has been more closely tied to the improvement in commodity prices.

For the 16th consecutive month, the purchasing managers’ index of the U.S. Institute of Supply Management (ISM) exceeded 50% in November. The PMI is a composite of five diffusion indices (i.e., positive minus negative survey responses) on such matters as production and employment for the manufacturing industry.

A reading above 42% for the PMI indicates an economy that is expanding. Manufacturing requires a reading above 50% to be in an upswing. According to the ISM, 56.6% for the PMI corresponds with a real (inflation-adjusted) gross domestic product (GDP) growth rate of 4.9%. 

Many analysts key on consumer spending as the most important part of the economy if the recovery is to forge ahead. Personal consumption expenditures comprise 70% of U.S. gross domestic product (GDP). And nearly 20% of consumer spending originates with the auto sector.

Total car and truck sales in the U.S. were 12.26 million units annualized in both November and October, according to Autodata Corp. This was their highest level since August 2009, when there was a spike due to the cash-for-clunkers program. During the recession, the annualized monthly sales volume dropped down to around 10 million units. 

In light vehicle sales (i.e., passenger cars and small trucks), the 10.4 million units sold in the U.S. in the first 11 months of this year has already surpassed the annual total for last year. The improvement in sales by the Detroit Three has been particularly notable.

Ford’s light vehicle sales to date this year versus the same January to November period of last year were +21.1%. Chrysler’s sales were +16.5% and GM’s +7.0%. The GM figure however, is before omitting brands that were sold last year and have since been relinquished. On a same brand basis, GM’s sales gain has been comparable to the other two majors.

At this time of volatility in currency markets, it is interesting to also monitor certain foreign-owned brands. For example, Volkswagen (+21.3%) has led the sales increase in the United States by German-owned manufacturers. Daimler has recorded a 12.2% gain and BMW a 9.3% increase.

As the value of the U.S. dollar picks up relative to the Euro in the fallout from sovereign debt problems overseas, the revenue from U.S. sales that is sent back to headquarters in Germany gets a currency boost. A decline in value of the Euro also makes it easier for European car companies to keep their prices competitive.

American motor vehicle sales are important for Canada because an outsized proportion of Canadian production is destined for the U.S. market. Canadian assembly plants roll out about double the number of cars, vans and trucks that are sold domestically.

As for U.S. consumer spending overall, perhaps the most interesting phrase that has been appearing in the business press lately with respect to U.S. economic prospects is “frugality fatigue.” Some analysts believe consumers may be growing weary of belt tightening and are about to indulge their whims to some greater degree.

A look at the pattern of U.S. retail sales suggests that the talk about thrift on the part of U.S. consumers may have been overblown regardless. Since the bottom for U.S. retail sales in late-2008/early-2009, the slope of the total retail sales curve has been every bit as steep as it was before the recession.

Total U.S. retail sales now stand only 3% below what they were before the big dip that began in December 2007.

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.


Email

RSS Feed

» back to blog home

Member Comments

Post Your Own Comments 
» Not a member? Register now to become one. Otherwise, login to post your comments on this article.

Read Other Recent Alex Carrick Posts

05/04 - U.S. Employment Rose by a Mediocre 115,000 in April
04/27 - U.S. GDP +2.2% in Q1 2012 and Alberta led Canadian Provinces in 2011
04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates
04/12 - Canada’s Trade Surplus in February Declined but Business is Optimistic
04/03 - A Tale of Two Budgets
03/29 - A strong year for new construction investment intentions in 2012
03/21 - Leading Indicator Series Add to Good News about the U.S. and Canadian Economies
03/06 - Three key trends, more forays into high-tech and the importance for construction
02/29 - Two important sources of strength: share prices and non-residential construction
02/22 - Home resale market may be picking up in the U.S. while flattening in Canada
02/16 - Good news on U.S. housing and employment is positive for Canada as well
02/08 - Home starts and job levels diverge in Canada and the U.S.
02/03 - Canada’s labour market flat in January but U.S. on a roll
01/23 - Canada’s leading indicator series continued to charge ahead in December
01/12 - 2012 holds promise but there’s no denying the uncertainty (part 2)
01/11 - 2012 holds promise but there’s no denying the uncertainty (part 1)
01/04 - How stock prices have performed depends on the timing of the data points
12/22 - Canada stands firmly in the middle of the road as it enters 2012
12/14 - Trade issues climb the agenda in both Canada and the U.S.
12/05 - Finding Fault with Canada’s Carbon Footprint is Absurd

click here to update your log-in and member information

click here to maintain your company profile & view metrics