A weekly scorecard on the state of the economy in North America and beyond

EconowatchIt’s a safe bet you’ve never heard of Glenn Stevens. But if this past week was any indication, Australia’s central bank governor is either the best thing to happen to the global economy since “green shoots,” or a harbinger of economic doom.

First the good news. On Tuesday, Stevens made the surprise move of jacking up Australia’s key interest rate a quarter percentage point to 3.25 per cent—the first central banker in a developed economy to do so since the worldwide recession began. Investors were ecstatic. Here, bullish analysts argued, was clear evidence of a global recovery. Within an hour of opening, North American markets jumped more than two per cent. As one headline screamed, in what has to be a first: “Wall Street jumps on Australia rate hike.”

No offence to our friends Down Under, but the notion that a stronger economy in Australia could herald a recovery in, say, the U.S. is as silly as saying Canada’s fortunes dictate what happens south of the border. Actually, it’s sillier. Australia doesn’t even make the list of America’s top 15 trading partners, putting it behind countries like the Netherlands, Brazil and even Venezuela, with less than 1.4 per cent of total trade. (Canada, of course, is number one.) And never mind that the move by Australia came even as markets digested more disappointing data about rising unemployment and falling consumer confidence in the U.S. In this rally, only the good news counts.

But there was another group cheering the move by the Aussie central bank, and if they’re right, all the optimism investors can muster won’t be enough. From the moment governments began pumping US$5 trillion of stimulus into the global economy, gold bugs have warned that a period of hyper-inflation looms on the horizon. Think Zimbabwe, they say, gingerly stroking their bullion. And when it happens, the only safe haven from the storm will be the shiny metal. So when Stevens took the step of raising rates, even by such a tiny amount, to head off inflation, gold investors saw it as proof the big one is coming. On Tuesday, an ounce of gold soared to an all-time high of US$1,045.

Who’s right? Who knows. One thing is clear—uncertainty reigns. The simple fact that a single Australian rate decision played such a pivotal role in global markets and commodity prices says a lot about how hard it’s become to gauge where the economy is headed. But more than that, it shows how desperate investors are for positive signs of recovery, no matter how wobbly, to keep the rally going.

GRAPH OF THE WEEK: A clunker of a month

U.S. auto sales soared in August, thanks to the $3-billion cash-for-clunkers program. Now the bad news: the money is gone and so are sales for troubled automakers.
A clunker of a month


Back in service
The U.S. service sector is back in expansion mode for the first time in a year. The Institute for Supply Management’s non-manufacturing survey rose 2.5 points to 50.9 in September. Anything over 50 signals growth. The service sector accounts for 80 per cent of the U.S. economy.

Small is good
Canadian small businesses are holding their own during the recession, according to a report from CIBC. The number of bankruptcies involving small- and medium-sized enterprises over the 12 months prior to July was down 6.1 per cent from the same period the year before.

Homes, sweet homes
Another month, another hopeful sign of life in the crucial U.S. housing market. The number of contracts to buy previously owned homes jumped 6.4 per cent in August, more than expected. Pending sales are seen as a good indicator of where the housing market will be within a month or two.

Building up
The value of building permits in Canada reached $5 billion in August, a 7.2 per cent jump from the previous month. The biggest increases came in Ontario and British Columbia. For residential home construction, this marked the sixth consecutive monthly increase.


Labour pains
If the recovery is really under way, somebody forgot to tell employers. The U.S. shed another 263,000 jobs in September, far worse than economists had expected. America’s unemployment rate inched up 0.1 per cent to 9.8 per cent. That might not seem like much, but it’s likely worse than it appears because 571,000 workers simply gave up on the economy and left the job market altogether. And they’re not even counted as unemployed.

Consumer dispirit
The American consumer seems to be slipping back into depression. The Conference Board confidence index unexpectedly tumbled in September, erasing some of the positive gains it had made over the summer. The index fell to 53.1, from 54.3 in August, as consumers fretted about the deteriorating job market.

Factory fall
Demand for manufactured goods fell 0.8 per cent in August, according to the U.S. Commerce Department. The decline in orders to U.S. factories came as a surprise, following four consecutive months of gains. Falling demand for commercial aircraft was the biggest drag, decreasing over 40 per cent. In a separate report, the Institute for Supply Management’s index of manufacturing activity for September also marked a surprise drop.



The sport of kings isn’t what it used to be. At the world’s largest annual auction for racehorses, sales were down over 40 per cent compared to last year. Sales had been booming in recent decades, as more and more buyers, feeling richer as the value of their homes and portfolios grew, entered the market. But the downturn has taken its toll. Not only are breeders feeling the sting now, so are racetracks, where betting is down 11 per cent this year.
r When it comes to recession, marriage has its perks. Single people have been losing their jobs at a rate more than 50 per cent higher than married people in the U.S., according to a recent study. Married people are faring better for a few reasons: they are more likely to take lower-paying jobs to support families, and are typically more educated than their younger, single co-workers.


For one glorious month Canadian economists could point to June’s 0.1 per cent increase in the GDP and cheer the approaching recovery. That was, until the data for July came out. The economy flatlined with zero growth, well below the 0.5 per cent expansion economists had been looking for.

“In a month that was widely expected to define the onset of economic recovery, the economy instead laid an egg.”—Stewart Hall, economist, HSBC

“Like a long unused engine, Canada’s economy is sputtering as it’s warming up.”—Avery Shenfeld, chief economist, CIBC World Markets

Douglas Porter“We’re not talking a shot across the bow of optimists, this is . . . a torpedo through the hull.”—Douglas Porter, deputy chief economist, BMO Capital Markets Jim Flaherty“It just shows the recovery is fragile . . . so we have to stay the course, continue to implement the economic action plan, the stimulus that we are putting into the economy.”—Finance Minister Jim Flaherty

“We were thinking the global recovery would really benefit Canada. But we’re realizing that was true for very few sectors.”—Sébastien Lavoie, economist, Laurentian Bank

“The figures provide a sobering reminder that the technical end of a recession may not imply a rapid recovery.”—Erin Weir, economist, United Steelworkers

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