Ten Mid-December Economic Nuggets

Dec 15, 2013

For a change, relatively strong numbers on the U.S. economy are not immediately being upstaged by political machinations in Washington. The bipartisan committee assigned the task of finding budget measures acceptable to majorities in both the Senate and House appears to have drafted a satisfactory set of proposals. There is one other hurdle to overcome. The Federal Reserve will soon be “tapering” its $85 billion per month bond-buying program. Soon-to-be-Chairman, Janet Yellen, would like to accomplish this with minimal impact on Treasury Bill and private-sector interest rates.

Against this backdrop, there are the following other recent economic nuggets to note:

1) In its second estimate, the Bureau of Economic Analysis (BEA) is saying U.S. “real” (i.e., inflation-adjusted) quarter-to-quarter annualized gross domestic product (GDP) growth in Q3 was 3.6%. That’s a step up from Q2’s +2.5%, which was itself an improvement on Q1’s +1.1%. It’s in line with the strength being shown in the Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM). History has shown that November’s PMI reading of 57.3% corresponds with a GDP real growth rate of 4.7%. Canada’s Q3 annualized GDP change was also the fastest so far this year, at +2.7%. 

2) The latest labor market report for the U.S. was more upbeat than for Canada. Total employment south of the border rose by 203,000 jobs. A continuation of that pace until next May will see total employment in the U.S. finally return to its pre-recession peak. Private service-providing jobs are already setting new all-time highs on a monthly basis. There are two major lagging sectors, manufacturing and construction. In the former, improved auto production is helping to create an upward trend. In the latter, gains in housing starts will soon have an important impact.

3) The U.S. unemployment rate dropped 0.3 percentage points in November to settle at a significant benchmark, 7.0%. That was its lowest level in five years. During most of those same five years, the U.S. jobless rate was considerably higher than in Canada, but convergence is nearly at hand. In the latest period, the Canadian comparable figure stayed level for the third month in a row, at 6.9%.

4) The performances of U.S. stock market indices have been outstanding. NASDAQ is up 200% from its February 2009 trough and a further increase of only 15% will (provided it happens) take it to its early-2000 all-time peak. The DJI and S&P 500 are also merrily skipping skyward. In a concession to these rapidly changing times, in which high-tech and the Internet “rule”, the S&P’s administrators have added Facebook to its “500” and “100” series. Meanwhile, the Toronto Stock Exchange continues to mope along, waiting for better world trade to lift commodity prices.

5) U.S. retail sales in November were +0.7% month to month and +4.7% year over year. Given that inflation is so low ‒ +1.0% for the all-items CPI year over year in October ‒ constant-dollar consumer spending must be advancing rapidly. This is good news for GDP’s bottom line, since consumption in the U.S. accounts for 70% of national output. The sub-sector showing the most year-over-year strength was motor vehicle and parts dealers, +10.2%. Furniture and home furnishing stores were a close second, +9.7%. The category “non-store retailers” (i.e., Internet and catalogue sales), which is usually the front-runner, came third this time with a 9.4% gain. With the gift-giving holidays approaching, and bolstered by the introduction of some well-reviewed new gaming consoles (PlayStation 4 and Xbox One), electronics and appliance stores also did well, +6.8%.

6) At the time of writing, recent U.S. housing starts remain a mystery. Data collection became impossible during Washington’s partial shutdown in the first half of October. There is one positive advance indicator of what we’re likely to see when the statistics do become available. Residential building permits in November climbed above one million units for only the second time since the recession. On the other occasion when they exceeded that milestone, starts also shot above one million units.

7) Canada’s housing starts in November eased slightly, but remained elevated, at 192,000 units seasonally adjusted and annualized (SAAR). The “official” annual figure for 2013 will be close to 187,500 units. The New Housing Price Index (NHPI) from Statistics Canada rose 0.1% between September and October, to sit 1.5% ahead of October last year. The two cities with the strongest year-over-year increases were Calgary (+6.1%) and Winnipeg (+4.1%). Three cities ‒ Vancouver (-1.5%), Victoria (-0.9%) and Ottawa-Gatineau (-0.4%) ‒ recorded declines.

8) In a further sign of the times, Canada Post has just announced that over the next five years, it will be phasing out home delivery of mail in urban centers in favor of community pick-up boxes. The corporation is bleeding money. Nearly everyone is communicating by e-mail, instant messaging and/or through postings on Facebook, Twitter and other social media sites. Still, many retailers, shut-ins and seniors will feel the pain. It will be interesting to see how this proposal goes over with voters.

9) In the U.S., Amazon has reached an agreement with the nation’s postal service to make product deliveries on Sunday. Of course, that may be superseded by the company’s further intention to eventually use flying “drones” to drop off parcels, taking us one more futuristic step forward. (Google is already pioneering driverless-cars.) 

10) Time Magazine has chosen Pope Francis as its 2013 Man of the Year. The residents of Toronto, of which I am one, wondered if bad-boy Mayor, Rob Ford, might be a contender. Let’s see, the Pope or Mr. Ford? I don’t envy the editors of Time faced with such a difficult decision.

Alex Carrick

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

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