Econowatch

THE BAD NEWS

Room for improvement
Despite signs of recovery in the new home market, U.S. construction spending continues to fall. It was down 0.2 per cent in July from the month before, and down 10.5 per cent, year over year. Residential construction was up slightly in July compared to June, but it was still down a whopping 27 per cent from a year earlier.

More bad banks
Between March and June the number of problem banks in the U.S. jumped 36 per cent to 416, straining the Federal Deposit Insurance Corporation (FDIC) to the point where some are asking if the agency needs a bailout of its own. With the collapse of 81 banks so far this year, the FDIC now has less in its coffers that it has had in 16 years.

Wish you were here
Fewer tourists are coming to Canada and the ones that do are spending less while they’re here. Statistics Canada says spending on travel into Canada fell 1.6 per cent in the second quarter, to $3.8 billion. One reason: the number of Americans crossing the border for overnight trips fell 2.5 per cent to a 16-year low.

Glee to glum
Consumer confidence in America continues to see-saw. Last week the Conference Board registered an uptick in the national mood, but the University of Michigan consumer sentiment index just fell to its lowest level since April. The index was driven down by consumers who believe the economy’s present condition is deteriorating.

SIGNS OF THE TIMES

• Even drug dealers are feeling the sting of the downturn. Some high-end cocaine dealers who once specialized in delivering to preferred clients are resorting to cold-calling former users to try and drum up business, reports New York magazine. But they’re finding few can afford the pricey drug. Even college kids aren’t interested, says one dealer.
• I’m a PC, and sales are looking up. Computer maker Dell surprised analysts with strong earnings in its latest quarter, and it reported that it expects commercial PC sales to take off next year. Meanwhile, Intel boosted its sales forecast, citing strong demand for its computer chips. After a year of hard times and abysmal sales, it appears that things are finally getting better for the lowly desktop computer.
• Call it the “cash for car seat clunkers” program. In the U.S., Toys “R” Us is offering shoppers a chance to turn in used baby products like car seats, cribs and strollers in exchange for a 20 per cent discount on new items. Toys “R” Us hopes to reverse a slide in sales of nearly 10 per cent this year as frugal parents have looked to hand-me-down items rather than buying new.
• Men’s underwear sales are improving, and that can only mean one thing: the recession is almost over. Economists say that when the economy sinks, men tend to put off buying boxers. Because of that, sales are expected to fall by two per cent this year. But now the underwear index is on the rise, and thanks to the resurgence, retailers report that sales are expected to be off by just 0.5 per cent next year.

LATEST INTELLIGENCE

The Canadian economy grew for the first time in 11 months in June, eking out a 0.1 per cent gain, even as growth in the second quarter continued to fall 3.4 per cent on an annualized basis. The news brought more predictions that the recession is over. But with unemployment still rising, not everyone thinks it’s time to celebrate.

“Mark it on your calendar—the Canadian recession ended in June.”—Avery Shenfeld, chief economist, CIBC

“The monthly GDP numbers and the quarterly GDP numbers set us up for a very nice pop.”—Sheryl King, economist, Merrill Lynch Canada

“Fiscal and monetary stimulus in North America and abroad is kicking in, signalling that an economic recovery has begun.”—William Downe, president and CEO, Bank of Montreal

“If you’re out of a job in Canada, it doesn’t make any difference at all, does it?”—Finance Minister Jim Flaherty

“More and more, we’re looking at an incremental recovery, rather than a sharp V-shaped recovery.”—Stewart Hall, strategist, HSBC Securities

“This could be a very halting recovery.” —Douglas Porter, deputy chief economist, BMO Capital Markets

“Relative to what we all thought a year ago amid some of the biggest financial institutions falling apart, everybody’s got off a little bit lighter than we would have thought.”—Don Drummond, chief economist, TD Bank

THE WEEK AHEAD

Friday, September 4: Statistics Canada will report the unemployment rate for August. More job losses are expected.

Tuesday, September 8: The value of new building permits for July will be released by StatsCan. While still well below last year’s levels, a one per cent increase in June surprised analysts.

Wednesday, September 9: The number of July job openings in the U.S. will be reported. Hiring levels remain very weak.