Recovery? You bet. -

Recovery? You bet.

Signs point to a resurgent U.S. economy. And that’s good news for Canadians.



Recovery? You bet.

Over the Thanksgiving weekend in the United States, retailers experienced their best sales gains in four years, surprising many analysts | Adam Hunger/Reuters

With the flood of facts and figures that rush by every day, it’s easy to lose sight of the bigger picture when it comes to the American economic machine. For every batch of positive news confirming a recovery, it takes just one bad jobs report or trigger-happy dictator in North Korea to plunge us back into doom and gloom. But Lakshman Achuthan, managing director of the Economic Cycle Research Institute, and someone who studied recessions and recoveries for two decades, has a message for anyone with an interest in seeing the U.S. economy get back on its feet. “The revival is right in front of us,” he says. “Overall economic growth is about to accelerate.”

Signs of America’s resurgence abound. Shoppers surprised analysts during the Thanksgiving weekend—they helped drive retailers to their best sales gains in four years. They’ve also begun to indulge again, driving strong revenues at companies like Starbucks and cosmetics giant Estée Lauder. At the same time, manufacturers have enjoyed a resurgence of late. Sales and exports are both up. It’s all helped boost America’s top line. In November, third-quarter GDP was revised up to 2.5 per cent from two per cent—the fastest growth rate the U.S. has seen since the end of 2006.

All of this is vital for the Canadian economy. Last week, the Bank of Canada held steady on interest rates, leaving the overnight rate at one per cent. While the U.S. economy is revving up again, Canada has lagged. In the third quarter, GDP growth fell to one per cent, half the rate seen in the second quarter. Despite seeing an increase in exports to China, the U.S. is still the destination for nearly 75 per cent of Canada’s exports, so a strong rebound in that economy will help us immensely. At the same time, fears over the U.S. economy helped drive down the value of the greenback, hurting manufacturers here whose goods, priced in soaring Canadian dollars, have become more expensive. As things improve south of the border, that should take some of the air out of the loonie and lift trade.

Canada also stands to benefit from the recent compromise between President Barack Obama and Republican legislators to extend Bush-era tax cuts and unemployment benefits. As a result, economists at the Bank of Montreal now expect Canada’s economy to grow 2.7 per cent, up from 2.4 per cent. “The compromise stimulus deal is a welcome boost for the U.S. economy, household and business confidence, and, by extension, Canadian trade,” Sherry Cooper, BMO’s chief economist, wrote in a report.

Yet the U.S. job market continues to cast a dark shadow. In November, just 39,000 new jobs were created, far below analysts’ estimates, while the unemployment rate rose to 9.8 per cent. But even here there are reasons to believe the job market could turn positive a lot faster than expected. For one thing, companies are hiring again. According to the U.S. Labor Department, the number of job vacancies jumped by 351,000 to 3.36 million in October, the highest level since August 2008. It’s a safe bet that figure has risen even more since then.

On the ground, a shift is under way. In the rust-belt city of Dayton, Ohio, local businesses have an immediate need to hire thousands of new workers. “We are starting to see growth, job opportunities and more consumer confidence than we’ve seen in the past couple of years,” says Chris Kershner, with the Dayton Area Chamber of Commerce. In Richmond, Va., online job site has seen the number of listings double from last year. “It’s been awhile since we’ve had employers contact us saying, ‘We just can’t get enough applications,’ ” says SnagAJob’s Amanda Richardson, who notes the company is doubling its own staff to 300. Even in blighted Las Vegas, several hotels have shifted into hiring mode. Ten months after the Ritz-Carlton Lake Las Vegas folded, a new company, Dolce Hotels and Resorts, is reopening the hotel to capitalize on a nascent rebound in tourism. The hotel is on the hunt to fill 125 immediate vacancies before opening in February. “We are definitely starting to see cautious optimism in tourism and travel pick up,” says Barry Goldstein, an executive at Dolce.

America still has a long way to go to replace all eight million jobs lost during the recession, but the momentum of the recovery is picking up. “We continue to believe that U.S. employment will be stronger than most investors expect next year,” Richard Bernstein, a fund manager who had predicted the recession, wrote in a note to clients last week.

It’s a positive sign that several economists and investors who warned about the dangers of the housing bubble before the recession now believe the U.S. economy is on terra firma. In Bernstein’s case, as former chief investment strategist at Merrill Lynch last decade he alerted investors to the dangers of the housing bubble. Now, as a fund manager, he’s turned bullish on America. “The common theme today is that the U.S. stinks,” he told the Associated Press. “But the economy is already in better shape than people think.” He’s backed that up by focusing his global equity fund on American companies at a time when many in the industry are switching from U.S. stocks to emerging markets.

Likewise Barry Ritholtz, director of equity research at Fusion IQ and author of the popular financial blog The Big Picture, astutely foresaw the crisis, yet has taken an increasingly optimistic tone in recent months. As for the many doomsayers who continue to predict imminent calamity, Ritholtz calls them “zombie bears . . . They will not admit the economy is getting better, albeit slowly,” he wrote recently. “They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.”

There’s a reason for that, says Achuthan at ECRI. “The classic emotional journey everybody takes in the wake of a big recession is, there’s a giant error of pessimism,” he says. To avoid that type of group think, ECRI focuses its analysis solely on leading indicators, which serve as tea leaves for the business cycle. And it’s why ECRI’s optimism now carries so much weight.

By looking at roughly 100 indicators that track things such as sentiment, inventories and new business orders, its various indices have proved reliable at detecting turns in the economy—it accurately predicted the 1990 recession, as well as the 2001 recession and subsequent recovery without ever crying wolf with a false recession call. ECRI didn’t predict the 2008 recession nearly as early as some others. It first warned of the potential for a downturn in December 2007 and didn’t make the official call until March—three months after the recession officially started (though still well in advance of the stock market rout in September). But importantly, in May 2009, as doom and gloom was rampant, ECRI accurately argued the recession was about to end. Similarly, earlier this year it rejected predictions of a double-dip recession, saying growth would merely slow before rebounding, which it has.

Still, skeptics of America’s recovery eagerly point to everything that could go wrong. America’s finances are a mess. The European Union is falling apart. North Korea is on a rampage and China may be slowing. But Achuthan dismisses all that: “To boil it down, those potential shocks, even if they manifest and become real, aren’t going to turn us into a recession any time soon.”


Recovery? You bet.

  1. I have a sneaking suspicion that economics is the art of finding the numbers to ignore to give the results you want. Sort of like the divination of the ancient Roman priests that would examine entrails of slaughtered sheep for signs of recovery.

        • I agree entirely, although I was a little late waking up to that reality.

          What do you thing about the Canadian Action Party?

      • Ya, I wrote that and I stand behind it too.

        There have been generations of "practical-minded" men, such as yourself MYL, that have completely failed to apprehend that the source of the failure of the soceity around them resided squarely in their very own brains. Your so-called conservativism needs to be called for what it really is: banker's logic. The only good thing to do with bankers is load them down with a highly regulated and vigorously enforced regime. Their reasoning should be kept well away and/or under the thumb of statesmanship.

        • My point here was: which sheep's entrails were you deciphering when you suggested that the federal government become the nation's leading counterfeiter, as if that plan was a good idea?

          • Ease off on the mix in your egg nog for the next one, MYL. How on earth could the duely authorized institution for the management and creation of the moneysupply be considered a counterfeiter? Your banker's logic is showing again.

        • Speaking of counterfeit money.

          100% reserve rates for banks would be a good place to start. Mulroney brought Canadian reserve rates for banks down to 0%, the lowest in the world alongside Sweden.

          • For which they were rewarded with their own banking crisis in the early '90's. Fortunately for them, wiser heads prevailed and the contageous assets were contained and writen off. It hurt, but the recovery was fairly quick.

      • you know you are a silly pessimist and cynic . And I am generous !!!

  2. Inferiority Complex? You bet!

  3. The US has major structural issues with its economy, namely productive capacity.

    • or rather, sustainable productivity.

  4. This reeks of a manufactured feel good story. The goal? Hopefully it's just to lessen anxiety over future job loss. The more likely reason? To loosen up consumer's to spend spend spend.
    What would happen if Christmas/Boxing Day sales don't come out supporting a recovery?
    Until real job growth puts skilled and professional workers back into productivity, this is just another blip.

  5. Zombie Bears all.

  6. Deflation is becoming a real worry. While prices going down are good news at face value it points to an underlying problem that will rear it's ugly head soon enough.

    • Why is deflation a worry? We always complain when prices go up, why is prices going down a bad thing? Why can we never be happy?

      • I believe that at least a part of the theory goes like this…
        1) economic activity slows…to the point where (some or the basket of) prices are falling
        2) folks recognize that prices in general are falling and suspect that the price of that car or TV or house or whatever is also falling AND decide to forgo making a few/some/many purchases for at least a little while until the price has dropped even more
        3) this decrease in spending continues in a vicious cycle.

        On that basis modest inflation is thought to be better than any deflation. Deflation also eliminates the ability of individuals, businesses or governments in particular from dealing with long term debts by simply having the debt essentially become "worthless" over a few decades.

        At least, that's my understanding, as deduced from a few experts and a few blog commenters.

        • I like your reply.

          But I most especially like Jenn's question "Why can we never be happy" being answered by someone named EeeOar. I hope Milne would have been proud.

          • Well, you know that Eyeore is not really all that unhappy….mostly he is just "misunderstood".

    • Asset deflation. Overpriced in a bubble, reverting to the mean.

      A restaurant client told me that his food prices jumped 100-600% this year. Yes, those numbers are real. He is facing a 7% government imposed price increase in a tight market, and can't raise prices to cover the increased costs.

      So we will see housing prices drop from the bubble highs, commercial real estate values drop because of high vacancy rates. Labor will drop, as already has happened in some markets. All the while commodity prices are increasing.

      Policy responses will attempt to reinflate asset prices, unsuccessfully. The only result will be further commodity price increases.

  7. Canadian pessimism at work – as always! :)

  8. Sure, go ahead and convince yourself that all is well and getting better. Maybe it looks that way, on the surface. But a house of cards will always be a house of cards, no matter what kind of spin you put on it.


    Zombie Bear

    • Agreed, you can't have an economy that's based on debt creation/growth without ultimately creating a catastrophe.

      I find it funny (in a morbid sense) that the USA government thinks that the answer is to bail out the banks so they can go back to manufacturing debt. (or "liquidity", or "credit" as economists like to say.) Maybe we can help Jo-Blow overcome his heroine addiction by injecting him with a large quantity of heroine.

    • Thanks for that Guy. Truer word were never spoken

  9. I'll believe these reports when I see the christmas retail numbers in a few weeks.

    • Why? There are far too many service sector jobs in the US.

  10. And here I thought we were supposed to be the most educated people in history. We look down on those on the Titanic who ignored the icebergs yet here we ignore the unbelievably huge (and growing) debt of America. Sooner or later (I'll bet sooner) the debt is going to reduce America to a third world country. Either that or their currency will be debased to that level. Wake the eff up.

    • The only answer will be a "Global Economy" monitored by a "One-World-Order". That's where this is all going.

  11. Well the old saying that there are lies, damn lies, and then there are statistics was never more true. I just loved how after paragraphs of feel good euphemisms the writer slips in the phrase "unemployment remains stubbornly high". Welcome to the new normal folks. Millions of workers thrown overboard and their jobs shipped off to 3rd world hellholes to be done by slave labour. And the powers that be are just tickety boo with that. This "boom" is just one last kick at the cat. The shysters are running out the back door with the cash as the roof caves in. Family debt now at 147% of income. Unsustainable. This will all end very badly.

  12. Consumer confidence is always a good sign for the economy. Let's hope that it continued into the new year and the US economy does infact rebound.

    However as others have said the US has a lot of structural issues that need to be addressed so it is likely that any rebound is in fact temporary.

  13. The article doesn't mention the Republican-led, Tea Party drinkers who will throw the baby out with the bathwater once they hold their collective breaths in Congress. With stocks up on Wall Street and the investment bankers protecting the huge hidden derivative markets and making their customary billions upon billions, who needs a lower unemployment rate? The numbers of disaffected job-seekers, who aren't included in the numbers, belie the situation. The mortgage defaults continue like the plague and the homeless numbers and welfare roles will be soaring once the states start cutting their unionized state workers and private sector workers from collective bargaining. But this only adds to the "good news" that the economists project with their "Invest In America" campaign. We're doomed to the same afflictions in Canada but the corporate media knows how to "give us the gears" to create the illusion of prosperity. When the wieners are hanging high and you feel like you're starving with a ham on your back, you get the feeling this ain't Kansas anymore.
    No tattoos please, I'll march to the gulag as a numberless man.