In the next month or two watch for overly optimistic newspaper articles that cherrypick favourable economic data or titbits of news and ignore or discount continuing negative trends and news.
The Globe and Mail newspaper in Toronto on Saturday March 27, 2010 made the following front page pronouncements:
- "The economy is in overdrive"
- "Canada is on the brink from moving from recovery to expansion"
- "Unlike the US Canadian companies have been hiring."
- "the domestic side of the economy has come flaring back almost to where it was before the recession began." -nice quote but unchallenged y the reported & unsupported by any data.
- "Many companies are enjoying an enexpected rebound and feeling better about their prospects"
- "The road is clear for the rest of the year"
Most of the economic activity was based on expanding the supply side(depleted inventory) and not necessarily a great uptick on the demand side.
In Canada recent job growth came mostly from government and the Olympics, not from the private sector. In the USA, we will see a similar blip when the US government hires thousands of people for the census this spring-a temporary make work project. In the US private sector executives in the Business Roundtable are more cautious and have not yet announced any great hiring spree. Expect over $1.4 Trillion in more bailouts and goverenment spending prior to the mid term US congressional elections in the fall.
A booming Toronto housing market, (just another bubble fueled mostly by speculators and foreign buyers), GM's third shift and glowing profits from LuLuLemon Athletica are sighted as signals that we are back on track again. I'm not so convinced, when I see the bankrupcy and foreclosure page in the Sunday paper that is still a half page long and multiple for lease commercial real estate signs up and down many commercial streets.
Canada is still too closely tied to the fortunes of the US economy, that has many more asset bubbles that could still burst (ie "under water" commercial real estate-just a matter of time, a steady stream of failed zombie US regional banks, growing national debt, state budget defaults etc ) and the NBER has not declared the recession over yet!
The Coincident Economic Indicator Index for various states is still heading south, so there is no sign of real economic growth yet. (ie Truck Tonnage in Feb is down, not up as expected in a recovery)
The article noted that "we can diverge from the US for so long."
Both maverick and mainstream economists are now surprisingly offering the same warnings:
A skeptic Nouriel Roubini, Chairman of RGEMonitor.com sees a downside risk to the economy in the second half of calendar year 2010 when the fiscal stimulus is going to fade away. “You avoided a free fall and that’s why risk aversion has reduced and there is a recovery of the economy. But in spite of this policy stimulus, the economy today should be growing at 6-7% rate. In stead of that we are debating if it will grow at 2.5% or 3%. Once the policy stimulus goes away, we will have to see if there is enough robustness in private demand to have a sustained economic recovery.”
| Economists Expect GDP To Falter In 2011 24/7 Wall St. Results from the poll used to create the Blue Chip Economic Indicator show that economists believe that US GDP will grow at a slower rate than they had ... |
Walter Derzko, Smart Economy, Toronto
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