January 22, 2014

Thirteen mid-January economic nuggets

The employment gains in the latest U.S. jobs report from the Bureau of Labor Statistics (BLS) may have been tepid but the potential of the U.S. economy is continuing to heat up. This is most evident in the foreign trade statistics. November’s goods and services deficit fell to its lowest level since the recession of 2008-2009.

Given the robust 4.1% “real” (i.e., inflation-adjusted) gross domestic product (GDP) growth rate in 2013’s Q3, a worsening trade deficit might have been expected, based on historical patterns. Such thinking is out-of-date. Now, vast increases in U.S. oil and gas reserves, thanks to wide-spread “fracking”, have reduced dependence on outside sources of energy.

Combine the turnaround in energy supplies with solid improvements in auto sales and new home starts and the present outlook is a “throwback” forecast with the U.S. supplanting China and assuming its traditional role as world growth leader. Against this backdrop, there are the following other recent economic nuggets to note:

(1) In December 2013, the U.S. gain in total employment (+74,000 jobs) was the lowest in three years, dating back to January 2011 (+69,000). A private sector estimate from ADP Research Institute came to a cheerier conclusion, +238,000. One major point of difference concerned construction jobs, -16,000 embedded in the former compared with +48,000 in the latter.

(2) A healthy year-over-year percentage change for U.S. total employment is +2.5% or more. In the latest report from the BLS, December 2013’s number versus December 2012 was +1.6%. Private-sector services employment, which comprises 70% of the total, was a decent +2.1%.

(3) The total number of U.S. construction jobs was +2.1% year-over-year, while employment in manufacturing was +0.6%. Among major services sub-categories, professional and business services (+3.5%) was the leader, followed by leisure and hospitality (+2.8%) and retail (+2.5%). The number of jobs in information services and government was flat, -0.1% in both cases.

(4) Delving deeper into sub-sectors, there were some other performances worth noting: jobs in motor vehicles and parts manufacturing, +5.1% year-over-year; amusements, gambling and recreation, +3.6%; computer systems design services, +3.3%; and architectural and engineering services (i.e., a leading indicator for on-site construction activity levels), +2.9%.

(5) The latest motor vehicle sales information from Autodata Corp. fell back to 15.4 million units seasonally adjusted and annualized (SAAR) in December, after a bullish 16.4 million units in November. At the Detroit Auto Show, Ford has announced the next generation of its best-selling F-150 pick-up truck will adopt an all-aluminum body in order to lower weight and improve fuel efficiency. What’s good news for one industry (i.e., aluminum) isn’t so hot for another (steel).

(6) For full-year 2013, General Motors led the Big Three U.S. automakers in unit sales, but Ford recorded the greatest percentage increase (+10.8%). Chrysler (+9.0%) took second, but GM (+7.3%) had nothing to be embarrassed about. Toyota (+7.4%) was the biggest other assembler.

(7) U.S. improved self-sufficiency in energy, combined with relatively low prices, has spurred on the repatriation of industries that use gas as both a fuel and a feedstock (e.g., the manufacture of petrochemicals). Also, working to reduce the overall trade deficit has been a remarkably high surplus in services trade. This category of economic activity includes tourism.

(8) U.S. “current dollar” (i.e., not adjusted for inflation) retail sales in December were +0.2% month-to-month and +4.1% year-over-year. With all-items inflation running so low (+1.2%), this points to a significant increase in “real” consumer spending, a key component (70%) of GDP.

(9) Leaders in year-over-year sub-sector retail sales were: motor vehicle and parts dealers, +5.9%; clothing and clothing accessory stores, +5.2%; health and personal care stores, +4.7%; and furniture and home furnishing stores, +4.5%. For non-store retailers (i.e., catalogue sales and the Internet), the year-over-year percentage gain (+9.9%) fell just short of double digits.

(10) Returning to labour market statistics north and south of the border, the U.S. unemployment rate (6.7%) in December dropped below Canada’s figure (7.2%) for the first time in five years. The greatest disparity between the two series occurred in November 2010, when the jobless rate in America at 9.8% was 2.2 percentage points higher than the Canadian figure of 7.6%.

(11) Canada shed 46,000 jobs in December. Year-over-year total employment was an anemic +0.6%. The service sector wasn’t much better at +0.7%, while construction eased back to +1.9%, after having been as high as +9.1% in August of last year, and manufacturing declined 2.3%. Saskatchewan (3.8%) closed the year with the lowest unemployment rate among the provinces, with Alberta next (4.4%). The four western provinces all recorded jobless rates lower than anywhere east of the Ontario-Manitoba border. Alberta led in year-over-year job growth, +3.3%.

(12) Canada’s merchandise trade balance was negative for the 20th consecutive month in November. The better prospects for the U.S. economy relative to Canada’s at this time are causing the value of the “loonie” to fall. So far, it has found a floor at around 92 cents American.

(13) Shockingly bad weather has been hanging around much of the U.S. and Canada since before Christmas, with power outages a common occurrence. Members of the scientific community, stung by assertions from the general public that the temperature is becoming cooler rather than warmer, have been stressing the difference between “weather” (short term) and “climate” (long term). As someone who walks his dog after 11 p.m. each evening, all this author knows is that the icy and slippery conditions of the past three weeks in my hometown (Toronto) seem to have only one serious intent — to cull the herd of older unsteady pedestrians such as myself.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

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