In the U.S., a recovery for the rich
By Erica Alini - Wednesday, May 8, 2013 - 0 Comments
Officially, the Great Recession in the United States ended in June 2009. For the following 2½ years, though, the recovery has only blessed the rich. For the rest of America, it felt like the recession kept on going.
That’s according to research based on the latest available data on the wealth of U.S. households. At the height of the financial crisis, the economy spared few American families, rich or poor. But once it started growing again, relief came unevenly. Only households in the top seven per cent of the income ladder saw their net worth—assets minus debt—grow between the second half of 2009 and the end of 2011, the recent Pew Research Center analysis shows. For the bottom 93 per cent, wealth continued to decline, shrinking by four per cent—more worrisome evidence, say economists, of rising inequality in the U.S.
Blame goes to the opposite trajectories of financial assets and real estate. Rising stock prices and soaring gains in bonds gave a quick lift to America’s top earners, for whom wealth is mostly concentrated in financial holdings. For most people, however, their homes are their most valuable assets and the housing market kept sliding through 2011. With bond prices at record highs and stocks up 34 per cent in December 2011 from June 2009, America’s eight million richest households saw their mean net worth grow to $3.3 million from $2.6 million. For the other 111 million households, mean net worth fell by $6,000 to an average of $136,426, as home prices declined five per cent in the first 30 months of the recovery.
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The recession and recovery: Australia did it better
By Stephen Gordon - Friday, May 3, 2013 at 10:49 AM - 0 Comments
(Seth Perlman/AP Photo)
It is frequently remarked that Canada fared “relatively” well during the economic and financial crisis. And it is also frequently remarked that current and projected short-term Canadian economic growth rates are relatively weak. Both statements are true. But it’s important to make the distinction between the level of economic activity and its growth rate. An economy that is still climbing out of recession has a lot more room to grow than an economy that has already fully recovered.
We’re used to measuring ourselves up against the U.S. economy, and sometimes the other G7 countries, but what about a broader comparison?
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Mexico’s economic moment
By David Agren - Monday, March 18, 2013 at 11:50 AM - 0 Comments
That boom coming from North America’s southernmost state isn’t just gunfire
Mario Armas/AP
A new truck rolls off the assembly line every minute at the GM factory in the conservative Catholic heartland of Mexico’s Guanajuato state. The factory in Silao, set in the shadow of a giant Christ statue considered the geographic centre of the country, produces so many trucks that GM has expanded its workforce by more than 60 per cent since 2008 and has plans to hire even more. The nearby Volkswagen plant just opened a $550-million engine plant and Toyota has announced plans for a facility down the road.
Manufacturing activity is mushrooming across Mexico, mirroring an upswing in the overall economy. The country produced more than 2.8 million cars last year, while factories in border towns like Tijuana and Ciudad Juárez churn out everything from plastic toys to plasma TVs. Manufacturing is now moving back from China—almost as fast as it fled Mexico a dozen years ago—as Asian salaries and shipping costs continue to rise. “This has nothing to do with Mexico,” Ed Juline, head of Guadalajara-based Mexico Representation, a business consultancy, says of the trend. “It has everything to do with China.”
Ten years ago, wages in Mexico were six times higher than those paid in China, but the gap had narrowed to 40 per cent by 2011, according to an International Monetary Fund report. Geography also works in the country’s favour, as companies take advantage of its easy access to U.S. and Latin American markets, where economies are expanding, demanding Mexico’s autos, appliances and advanced electronics.
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Should the recent GDP slump affect the 2013 federal budget?
By Stephen Gordon - Monday, March 4, 2013 at 12:43 PM - 0 Comments
The short answer is: apart from forcing government forecasters to update their near-term projections, it shouldn’t.
One longer answer starts with the national accounts identity:
GDP = Consumption + Investment + Government + Net exports
Changes in GDP can be attributed to changes in these expenditure categories. The charts below break down the contributions to the GDP growth during the past few business cycles. Both charts show the per cent contributions to the total increase or decrease in GDP. Here’s what happened during recessionary periods:
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U.S. GDP growth nearly five times Canada’s in third quarter
By Erica Alini - Friday, November 30, 2012 at 10:41 AM - 0 Comments
Even Statistics Canada couldn’t help but note that the tables are turning in North America:
Expressed at an annualized rate, real GDP expanded 0.6% in the third quarter. By comparison, real GDP in the United States grew 2.7% in the third quarter.
The Canadian economy expanded — or rather, sputtered along — at 0.1 per cent in the third quarter of the year, which works out to an annualized pace of 0.6 per cent. It was below what RBC had called a consensus estimate of 0.8 per cent annualized growth, and a far cry from the Bank of Canada’s somewhat bullish call for one per cent annualized growth. It’s unlikely now that Canada will meet the governor’s target rate for the year of 2.5 per cent growth.
Source: Statistics Canada
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Why the Canadian labour market is already back to normal
By Stephen Gordon - Thursday, September 13, 2012 at 3:35 PM - 0 Comments
The Labour Force Survey release for August was typical of LFS releases since the recession ended three years ago: modestly good news, but not enough to put a serious dent in the unemployment rate. When will things get back to normal?
The answer is “things are already back to normal.” Canadian unemployment rates simply don’t fall quickly back to pre-recession levels during a recovery (click on the graphs to open a larger version in a new window):
To understand why unemployment jumps up quickly but declines slowly requires looking at the dynamics of the labour market.
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Why ‘idle cash’ is a myth
By Stephen Gordon - Thursday, September 6, 2012 at 10:00 AM - 0 Comments
(Getty Images)
Pop quiz: Summarize the relationship between the following decisions:
- How much a firm invests in new equipment and/or new construction.
- How a firm finances investment in new equipment and/or new construction.
If you answered “There is none,” you’re absolutely right: investment and financing decisions are completely separate questions. And you probably are as bemused as I am about the whole “too many firms are sitting on piles of cash instead of investing” meme. It makes as much sense as claiming that “too many firms are using Helvetica in their annual reports instead of investing.”
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Recovery? You bet.
By Jason Kirby - Thursday, December 23, 2010 at 12:40 PM - 32 Comments
Signs point to a resurgent U.S. economy. And that’s good news for Canadians.
Over the Thanksgiving weekend in the United States, retailers experienced their best sales gains in four years, surprising many analysts | Adam Hunger/Reuters
With the flood of facts and figures that rush by every day, it’s easy to lose sight of the bigger picture when it comes to the American economic machine. For every batch of positive news confirming a recovery, it takes just one bad jobs report or trigger-happy dictator in North Korea to plunge us back into doom and gloom. But Lakshman Achuthan, managing director of the Economic Cycle Research Institute, and someone who studied recessions and recoveries for two decades, has a message for anyone with an interest in seeing the U.S. economy get back on its feet. “The revival is right in front of us,” he says. “Overall economic growth is about to accelerate.”
Signs of America’s resurgence abound. Shoppers surprised analysts during the Thanksgiving weekend—they helped drive retailers to their best sales gains in four years. They’ve also begun to indulge again, driving strong revenues at companies like Starbucks and cosmetics giant Estée Lauder. At the same time, manufacturers have enjoyed a resurgence of late. Sales and exports are both up. It’s all helped boost America’s top line. In November, third-quarter GDP was revised up to 2.5 per cent from two per cent—the fastest growth rate the U.S. has seen since the end of 2006.
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Which way is up?
By Chris Sorensen - Thursday, September 30, 2010 at 10:40 AM - 0 Comments
Managing the so-called economic recovery may prove to be the biggest challenge yet
Getty Images
The world’s central bankers and politicians were praised for their coordinated response to the 2008 financial crisis. But as the global economy limps along, it turns out that managing the so-called recovery may prove to be the biggest challenge yet. Unlike the credit crunch, which was fixed by throwing massive amounts of money at it, there’s no longer a clear path forward for the economy now that interest rates are near zero and billions worth of stimulus have failed to produce the desired effect.
With the key U.S. economy sputtering along with the rest of the world’s, the debate continues to rage about whether even more stimulus is needed to avoid another downturn. Last week, a group of some 300 economists signed a letter calling for the U.S. government to keep the spending taps open in an effort to juice an economy that continues to shed jobs. “History suggests that a tenuous recovery is no time to practise austerity,” said the group, organized by the left-leaning Campaign for America’s Future. On the other hand, there are concerns about further inflating the deficit—already forecast to be US$1.3 trillion this fiscal year—lest the country’s ballooning debt drag it into the abyss.
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An abundance of oil
By Chris Sorensen - Sunday, September 12, 2010 at 9:03 AM - 0 Comments
Fears over dwindling supplies of energy, ‘peak oil’ and future spikes in fuel prices may be overblown
RICHARD LAM/CP
In June 2008 the price of a barrel of oil briefly hit US$145, sparking questions about an impending global shortage. But then the recession hit, demand dropped and prices plummeted to US$30. There’s no question the economic downturn resulted in idled factories and fewer gas-guzzling family summer vacations in the SUV, but it still doesn’t come close to explaining how the price of a barrel can fluctuate by more than US$100 in just a few months, raising the question of how much the precious resource is actually worth in the first place. The answer, says analyst Peter Beutel, the president of energy consultancy Cameron Hanover, is not much more than $10, based on a pure supply and demand calculation.
Beutel offered the lowball estimate during an interview with CNBC last week, arguing the price of oil is generally elevated because it’s treated as an investment—something bought with an eye to making money, not simply a resource to be consumed. “The volatility comes from speculators,” agrees Frank Atkins, a professor of economics at the University of Calgary.
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An economy under the weather
By Chris Sorensen - Thursday, March 18, 2010 at 3:00 PM - 1 Comment
Snowstorms blasted the U.S. and took a bite out of the economy, too
Photograph by Kevin Lamarque/ Reuters
During the first week of the 2010 Games, Vancouver’s winter weather—or more precisely, lack of it—was a hot topic. In the end, though, the spring-like conditions proved no match for a determined army of snow-shovelling workers. But while Olympic organizers were able to temporarily wrestle Mother Nature into submission, the bright minds charged with running the giant U.S. economy weren’t nearly so lucky.
In the United States, harsh winter storms pounded the densely populated eastern seaboard in February, and are blamed for taking the steam out of the country’s economic recovery. Washington, for example, was buried under more than half a metre of snow during a blizzard dubbed “Snowmageddon,” which disrupted the entire region and was followed by an encore performance less than a week later. The storms disrupted government and air travel and caused many Americans to stay home instead of going to work or to the mall, putting a dent in everything from consumer spending to employment. “This February marked the first time in recorded history that each of the 50 states had measurable snowfall in the same day,” according to UBS, a Swiss bank. “It is therefore likely that this unusual weather played at least some role in the recent string of weaker-than-expected [U.S.] economic data”
It has been a different story north of the border—and not just in Vancouver. In Toronto, the country’s financial centre, bankers and lawyers have gone nearly the entire winter with nothing but bare concrete under their leather-soled dress shoes. Meanwhile, GDP numbers shot through the roof in the fourth quarter and talk has suddenly turned to taming the recovery, instead of stoking it. Bank of Canada governor Mark Carney will likely hike interest rates to cool any overheating, but praying for a few more snowflakes couldn’t hurt.
