Do we finally have lift off?
Today’s trade numbers in the United States and Canada suggest it’s certainly possible.
U.S. imports were a record in December, surpassing the previous monthly mark set in May, 2011. Canada was a major beneficiary, as its exports surged 4.5 per cent in the final month of the year. Canadian imports grew only marginally, resulting in a trade surplus of $2.7-billion, the biggest since October, 2008.
Canadian and U.S. trade figures followed an odd pattern at the end of last year. After a terrible spring and summer, a period when the U.S. economy barely grew, trade suddenly showed a spark in September, only to stumble in October. U.S. imports then increased by 1 per cent in November. In December, imports jumped 1.3 per cent, the biggest monthly gain in more than three years.
Consumption accounts for roughly 70 per cent of U.S. gross domestic product, making import demand a barometer of economic health. Jay Myers, an economist and head of the Canadian Manufacturers and Exports trade association, said companies in North American ran down their inventories in September and then restocked, causing a burst in trade. Then there was another pause as uncertain executives surveyed a global economy darkened by the cloud of the European debt crisis. But something surprising happened: the orders kept coming. By December, Mr. Myers says many of his members were working double overtime to keep up with demand.
“Business conditions are better than the perception out there,” Mr. Myers said in an interview Thursday during a visit to Washington. “We need more positive signals.”
The U.S. and Canadian trade data are certainly positive. U.S. exports and imports posted annual records in 2011. Canada’s boost in shipments abroad was mostly the result of the U.S., but exports also grew to non-U.S. destinations, suggesting the country is continuing to diversify its trading relationships. Canada’s trade story also is about more than oil. Healthy gains were recorded across most industries. Exports of machinery and equipment surged 9.2 per cent in December, the best performance since March, 2009.
Uncertainty remains high.
Europe is a short-term headwind that could suddenly swell into a tempest. Karen Ward, a senior global strategist at HSBC, said in a note this week that she and her colleagues are reluctant to get excited about the economic prospects of the world’s richer economies until they see wage growth begin to outpace inflation. Until that happens, there will be limits to household demand in North America and Europe. Stagnant disposable income also makes demand susceptible to an oil shock, which looms as another risk so long as Washington persists with its efforts to squeeze Iran.
Yet the evidence on the table mostly is good. Many forecasters these days reflect back to this time a year ago, when they were enthusiastic about the U.S. economic prospects, only to be embarrassed as the recovery stalled. But what if their pessimism is setting them up for further embarrassment this year?
Hindsight shows that it was certainly too soon to get excited about the recovery a year ago. Since then, U.S. households have had another year to work off their debts. Homes are being built at a rate that is barely more than half the pace that is needed to keep up with natural changes in the population. That can’t last; construction must rebound. The high unemployment rate remains a serious problem, but companies are hiring again. As long as that continues, the U.S. economy will continue to strengthen. U.S. consumers have now gone several years putting off purchases. That’s a lot of pent-up demand that will eventually be released.
“We believe the growth in the U.S. is broadly based enough and has been around for long enough that it is sustainable,” said Peter Hall, chief economist at Export Development Canada. “The U.S. economy is like a cork under water. At some point, you can’t hold it down any longer.”