Was it the weather?
Housing sector stakeholders are always looking at U.S. data for signals as to how things will play out here. The United States is Canada's largest trading partner, so America's fiscal and monetary policy and consumer demand trends all inevitably spill over the border. Now it looks like Canadian forecasters will also have to watch U.S. weather reports.
The latest revisions to American economic data released late last month, show that that the country's gross domestic product actually shrank during the first quarter by 2.9 per cent. Experts at the large financial institutions generally put a positive spin on the numbers. A typical response, by TD Economics, was to attribute the decline, which was concentrated in the personal spending and international trade sectors, to weather-related factors. The guess being that the quarterly decline was thus just temporary, and that things will bounce back during the rest of the year.
Others are not so sure. For instance, Peter Schiff, president of Euro Pacific Capital, ridicules the notion. He points out that while the United States did have its 10th worst winter in the last 50 years, if weather had been that serious a factor in the pullback, then the U.S. would have seen similar drops in other hard weather years.
Strong economic data
The debate over whether America's sorry first quarter data is just a blip is no mere academic disagreement. If the economy is headed for a rough patch, as Schiff believes, then consumers would be better off putting aside all the money they can in order to prepare for bad times. However, if all is good, as financial institutions and government authorities seem to indicate, then we should be able to continue on our present course.
The good news is that the latest employment numbers indicate that they may be right. The U.S. economy created an impressive 288,000 jobs in June. That follows strong performances in each of the two previous months.
Gross domestic product growth is tied to two major factors: the number of people working and how productive they are. According to James Marple, a senior economist at TD Economics, the new numbers suggest that the U.S. economy will indeed return to positive results during the second quarter. "The ongoing strength in job growth should put to rest any lingering doubts that the recovery is gaining traction," he wrote in a recent note to the bank's clients. "The trend is clearly accelerating and the number of industries adding jobs is broadening."
The news in Canada wasn't as good, with the loss of 9,000 jobs in June, following a strong 26,000 gain in May.
However, there are a few silver linings. For one, the Bank of Canada will be in no rush to raise interest rates if the economy remains this sluggish: That should please consumers and potential home buyers. Furthermore, if more Americans are working and buying stuff it will lead to more demand for Canadian goods.
In turn, companies could well be calling back some of those workers to fulfill those new orders.
Peter Diekmeyer is Bankrate.ca's economics columnist. He can be reached at email@example.com