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What volatility suggests Is the U.S. economy experiencing "flash" recessions?
It's a fascinating concept raised by Tom Porcelli, RBC's chief U.S. economist, and you can see it playing out through some monthly economic indicators.
"Is it such a stretch to say that we were just in a recession in August?" Mr. Porcelli says.
"Consider that in the same month we had zero job growth and essentially stagnant consumer spending," he said in a recent research report.
"From that perspective, answering yes to the question is not such a stretch. Of course, this would never meet the traditional definition of recession by the National Bureau of Economic Research (NBER), but that's sort of our point. We believe the current sentiment-driven backdrop will be prone to fits and starts where economic activity could come to a near standstill one month, followed by a modest bounce back the next month. Call it a flash recession. Call it whatever you want. The bottom line is we are growing increasingly convinced that if we remain in a highly sensitive sentiment-driven backdrop, flash recessions will dot the landscape and the risk of a traditional recession will continue to grow."
You can certainly see it in some monthly data. Today, for example, the U.S. Commerce Department reported that retail sales rose 1.1 per cent in September. There are other signs of a September bounce, The Wall Street Journal also notes today, citing auto sales at their best level since April, strong growth in sales among U.S. retail chains, and the latest reading on the U.S. labour market, which showed more than 100,000 jobs created.
What to make of it? It all highlights the increasing uncertainty in global economies and volatility in the markets.
Over all, Mr. Porcelli has a bleak outlook, citing the challenges in both the United States and Europe.
"The bottom line is that we are facing the prospect of a perfect storm of declining real income growth, moribund [capital expenditure]activity and faltering exports that would be more than enough to tip the economy over the edge and into a new recession in 2012," he said.
"The fact remains that if these trends remain in place, there is little doubt in our minds that negative GDP prints are right around the corner."
Manufacturing milestone Sales among Canadian manufacturers are now at their highest level since October 2008, when the economy was entering its ugliest phase after the collapse of Lehman Bros. in mid-September of that year.
Factory sales climbed in August by 1.4 per cent to $47.6-billion, Statistics Canada said today, noting the rebound from the recession. Increases were largely in the transportation equipment, food, and energy sectors, the agency said.
Inventory levels rose 0.3 per cent, continuing a largely flat trend we've seen over the last few months. The inventory-to-sales ratio dipped for the second time in a row, unfilled orders climbed 1.3 per cent, continuing on an eight-month upward path, and new order rose 0.8 per cent.
What's the outlook?
"With about one-third of our manufacturing sales going to the U.S., we are not expecting breakneck growth for the rest of the year," said senior economist Jacques Marcil of Toronto-Dominion Bank.
"Signs point to improved auto industry shipments stateside, but these are vulnerable to buyer confidence, which remains weak. At the same time, the recent softness of the Canadian dollar will provide offsetting support. Domestic-oriented sales are likely to remain respectable in light of a continued solid performance in the consumer and housing sectors."
G20 meets amid anger G20 finance officials begin meeting in Paris today against a global backdrop of anger, frustration and protest.
The euro crisis will be the focus of the summit of finance ministers and central bank chiefs, though this is the run-up to a meeting of G20 leaders in early November. Reports today say euro zone officials are working on a crisis plan they hope to have ready by then, one that could call for bigger haircuts for holders of Greek debt, and more heft for the International Monetary Fund.
If they're smart, the G20 finance officials meeting this weekend will also discuss the growing anger around the world, as the "Occupy Wall Street" protest movement spreads, including to Canada, and the demonstrations and strikes in Greece illustrate the misery of the people.
If they ignore the growing protests, they do so at their peril. The people are telling them something, and it would be unwise to write it off as a temporary demonstration, rather than treat it as the phenomenon that it is. Several business leaders say they sympathize with the movement, and it only promises to spread further in this era of high unemployment, foreclosures in the United States and harsh cutbacks by debt-burdened governments.
That's not to suggest governments should put off getting their fiscal houses in order, but, as many observers have noted, what's needed are plans to get people back to work along with medium-term measures to bring down swollen deficits.
Some had expected a showdown in New York today as protesters streamed into Zuccotti Park and demonstrators rushed to clean the area before they were evicted. But Canada's Brookfield Office Properties called off its plans to power wash the plaza, thus averting trouble.
- Europe crisis dominates G20 Paris meeting
- Park cleanup postponed as showdown with Wall Street protesters looms
- Judith Timson: Why did Occupy Wall Street take so long to happen?
China inflation slows China's inflation rate is slowing, but that may be small comfort. The pace declined in September to 6.1 per cent, according to official numbers released today, but that's not really down much from the 6.5-per-cent peak of July.
That suggests that the People's Bank of China isn't likely to ease its policies any time soon, a key fact given concerns among investors that the world's second-largest economy is slowing, eating into demand. Today's data follow yesterday's trade numbers, which have also raised fears
Lending has cooled in China but rising food prices - they were up more than 13 per cent in September from a year earlier - are still pressuring the pace of inflation.
"Last night's disappointing Chinese trade data has provoked concerns that the Chinese economy may be slowing down too quickly," said CMC Markets analyst Michael Hewson.
"This in turn has raised expectations in some quarters that the authorities could soon look at easing monetary policy to avert a hard landing," he said in a research note. "This seems unlikely given that Chinese CPI continues to remain elevated as this morning's September numbers prove. Consumer prices came in at 6.1 per cent, slightly down on the previous month's 6.2 per cent, though [the producer price index]did fall back to 6.5 per cent from 7 per cent."
- China inflation dips but remains high
- Canada to feel bite of Chinese trade slowdown
- Boyd Erman's Streetwise: China is in credit market crosshairs
Slash R&D tax breaks, study says The Canadian government should slash its generous research and development tax breaks and plow the cash back into targeted grants for businesses, according to a new study by the University of Toronto's Mowat Centre for Policy Innovation.
A radical overhaul is warranted because the nearly $5-billion a year in R&D tax incentives Ottawa and the provinces offer now aren't working, according to a study being released today, The Globe and Mail's Barrie McKenna reports.
Headlines of note
- Giddy fans queue to buy Steve Jobs's last iPhone
- Encana hopes to triple gas liquids output
- Barbie boosts Mattel's profit
In Economy Lab Emerging economies have obviously concluded they can live with a little inflation if it means keeping the growth train on track, The Globe and Mail's Brian Milner writes.
In International Business How should Britain escape from a slump that seems sure to be longer and costlier than the depression of the 1930s? Martin Wolf of The Financial Times examines the issue.
In Globe Careers Making a great first impression is about three key things: Self-confidence, knowing what you want to communicate, and doing your homework. Some advice from Katie Bennett.
From today's Report on Business