Canada and United States Release Several Indicators: Highlights

June 15, 2010

Foreigners on net bought over $100 billion of long-term U.S. securities for a second straight month in April.  The two-month average, $134.2 billion, compares very favorably with $43.8 billion per month in January-February, $53.3 billion per month in 2009 and $34.3 billion per month in 2008 and even exceeded the pace of $83.4 billion in 2007.  69% of all net purchases in March-April involved Treasuries, reflecting heightened risk aversion in the period.  Net of U.S. buying of foreign securities, an average monthly net long-term portfolio capital outflow of $111.8 billion was generated in March-April, 3.6 times greater than in the first two months of this year and enough to cover the U.S. goods and services deficit by 2.85 times.  According to the so-called TIC data collected by the Treasury Department, the broadest gauge of net capital inflows totaled $20.5 billion per month in March-April, which was more dollar-supportive than a net outflow of $24.9 billion in 2009 but not as much as the net inflow of $55.4 billion per month seen in 2008.

The Empire State index, a measure of factory sector activity in the New York area, was disappointing with a reading of 19.57 in June versus 19.11 in May and 31.88 in April.  The monthly U.S. National Association of Home Builders index likewise undershot expectations with its lowest reading in three months, 17 in June after 22 in May.  A third soggy piece of U.S. news was provided by weekly chain store sales, which fell 0.7% according to the ICSC-GS gauge and 0.5% on the Johnson-Redbook measure in the latest week.  Their trend has lately been flat.

Although total import prices fell 0.6% last month, reversing half of April’s increase, non-fuel import prices posted a surprisingly sizable 0.5% rise, after a gain of 0.6% in the prior month.  This measure of core imported inflation has accelerated to 3.6% on year in May from 2.8% in the 12 months to March.

Manufacturing sales and orders in Canada rose respectively by 0.2% and 0.3% in April, well below their earlier pace.  Compared to April 2009, they advanced by 10.5% and 22.2%.

Canadian productivity increased 0.7% in the first quarter, marginally faster than U.S. productivity, but the gain from 1Q09 of 1.8% in Canada was only about a third as much as the 6.1% equivalent four-quarter increase in the United States.  In U.S. dollar terms, Canadian unit labor costs soared 19.1% between 1Q09 and 1Q10 versus a 4.2% decline in U.S. unit labor costs.

One hears increasing chatter about a relapse into recession by early 2011 or a slowdown to near-stalling speed.  Slower growth than seen in late 2009 and early this year was to be expected because of the withdrawal of policy support and a temporary boost at the turn of the inventory cycle.  North American economies will be reliant on Asian demand because it will be hard to sustain consumption amid high unemployment.  The full ramifications of the BP oil spill is still quite unclear.  One pleasant development, I believe, is that long-term interest rates are likely to remain lower than feared.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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