August 12, 2010
Economic Snapshot
After a pause, growth in U.S. and Canada should regain momentum
JOHN CLINKARD
consulting economist, CanaData
Over the past several weeks, there has been an increase in concern about the health of the U.S. economy.
In his testimony to Congress in late July, U.S. Federal Reserve chairman Ben Bernanke stated that the economic outlook remains “unusually uncertain.”
While few analysts are expecting that the U.S. will experience a “double dip,” the economy is definitely limping into the second half of 2010.
This is evidenced by the retreat in consumer confidence in July, the downward revision to U.S. economic growth in the second quarter from 2.7% to 2.4%, plus the recent slippage in the July Manufacturing ISM Report on Business, from 56.2 to 55.5.
Despite record-low interest rates, business and consumer credit growth is almost stalled as banks faced with new regulations are reining in lending in order to hold more precautionary balances, according to Johns Hopkins University economics professor Steve Hanke.
Hanke expects that this contraction in credit will cause growth in both the U.S. and Europe to remain below trend over the near term.
Despite this rather subdued near-term outlook, there are indications that stronger growth of capital investment in the U.S. will soon contribute to a muchawaited rebound in private sector employment.
Moreover, as the uncertainty surrounding recently enacted U.S. financial regulations dissipates, business lending should strengthen.
Together with strong growth of corporate profits (+38% year over year in Q1/2010), these drivers should contribute to growth of investment and employment heading into 2011.
With respect to Canada, the sub-par pattern of U.S. growth will likely exert a drag on our exports over the near term.
Assuming U.S. employment strengthens later in the year, however, it should have a positive impact on Canadian GDP heading into 2011.
John Clinkard has over 30 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Data source: Statistics Canada and U.S. Institute of Supply Management.
Chart: Reed Construction Data – CanaData.
