Canadian Economic Outlook for 2013: Cautious Optimism

The Bank of Canada announced this week that Canadian businesses are optimistic about 2013.  The economy is expected to grow modestly this year with most of the growth in the manufacturing sectors in Eastern and Central Canada.

http://business.financialpost.com/2013/01/14/canadian-businesses-see-brighter-future-bank-of-canada-reports/?__lsa=bc90-e162

Meanwhile, the Economic Club of Canada predicts that the U.S. will have a 'surge' in the economy for 2013 and this will benefit Canada.  Canada's economy will get a boost in exports, which supports the Bank of Canada's prediction of growth in the manufacturing sector.

This is good news for Canadian businesses, not only for those in the manufacturing sector but also for support services.  With an increase in demand, businesses will likely see modest growth over 2013.

However, one must wonder if the rosy predictions are merely temporary?  With governments continuing to run deficits, with debts piling up and with consumer debt at an all time high, one wonders how long we can continue before interest payments overwhelm us.  When growth is being financed by debt, there is a problem.  Whether or not Canada (and the West) can manage both growth and debt reduction remains to be seen. 

Tough Year Ahead

To no one's surprise, 2012 is predicted to be a difficult year. Unemployment is up, deficits are huge and political dithering over austerity measures in Europe is likely to continue.

Few are holding their breath that the U.S. can get unemployment down or reduce the deficit by any meaningful amount. Factor in the continuing crisis in Greece and Italy and it is going to be a rough year for everyone.

Even Canada, which has weathered the storm relatively well, is not likely to escape unscathed. Prime Minister Harper has warned that 2012 will require 'tough economic choices'.

The economic recovery is looking less like a recovery and more like a Global Recession.

Does S&P Lack Credibility?

With the news of the recent loss of the U.S.' coveted AAA credit rating, stock markets went into a tailspin. All three major U.S. stock markets fell between 5% and 7% since the announcement by S&P.

The downgrade was a result of political disputes on how to handle the mounting debt. S&P delivered a sharp rebuke to the political class of the U.S.

Investors obviously panicked and decided to sell and ask questions later. However, some analysts are questioning the credibility of S&P in particular and rating agencies in general. S&P, along with Moody's Investors Service and Fitch Ratings were the same agencies that gave AAA ratings to subprime mortgage instruments that were, for the most part, junk.

Add in that S&P made a slight mathematical error when they first submitted their report to the Treasury Department: S&P, due to a computational error, overstated the debt problem by $2 trillion!

Nevertheless, even though this was pointed out, S&P still downgraded the U.S. rating.

The U.S. is definitely in trouble, but S&P lacks the credibility necessary to be the ones to point this out.

A Double Dip Recession?

Are we heading for another recession? Based upon the most recent headlines, some experts say yes. Still, it's far from a certainty and may simply be a minor correction before the economy begins a slow recovery.

It is possible that the worst is over in terms of housing prices, job losses and the hit to savings and retirement funds. On the other hand, few economists predicted the housing crisis or the worldwide fallout or the subprime mortgage crisis, so one can be forgiven for being skeptical about claims about 'market corrections'.

Given the US debt crisis, the EU debt crisis, the weakening US dollar and the fall in the stock markets, many are speculating another Great Depression. Along with calls to move back to the Gold Standard, is it any wonder than many fear another global meltdown?

Whether this will happen is anyone's guess but with the US debt at over $12 trillion and with record consumer debt, it may appear inevitable that the modest gains in the economy will be rolled back.

Nevertheless, it is likely that we will narrowly avoid dipping into another recession, but it is clear that we are not out of the woods yet.

Stronger U.S Economy in 2011

Although the U.S. unemployment rate has held at 9.4%, the number of new claims fell to 404,000, below expectations.

Economists indicate claims falling below 400,000 will signal that the U.S. unemployment rate will begin to decline.

Housing sales have also improved. Scotiabank Group has predicted a global recovery with global output expected to grow 4.2% and 4.4%, respectively, in 2011 and 2012. While the majority of this growth will occur in emerging economies, advanced economies, including the United States, are expected to see growth.

Still, for now U.S. unemployment remains stubbornly high with few new jobs being created. There are genuine concerns that the U.S. might be in a jobless recovery, despite Obama's assertions to the contrary.

Time will tell

U.S. Economy Slow to Recover

Canada's unemployment rate inched up in July, although this appears to be due to layoffs in the Education sector due to the summer months.

However, while the Canadian outlook is not too bad overall, the U.S. outlook is far more uncertain. The economy appears to be recovering, but at a slower pace than anticipated.

Unemployment is still high in the U.S. and it is not likely to drop significantly, at least for the short term

Economic recovery will be slow according to Buffett

Warren Buffett blamed healthcare for dragging down the economy. The U.S. healhcare is bloated and at 17% of GDP, is a much higher cost than healthcare costs of other countries.

Warren supported Obama's planned reforms but said he would prefer 'Plan C', one that focused on cutting costs.

Warren likened healthcare as a 'tapeworm' and said it was 'eating at our economic body'.

While the bloated healthcare in the U.S. is a serious problem, it is almost certainly not the only issue facing the U.S. economy. A massive debt, unemployment, consumer confidence, a housing crisis, not to mention a costly war, could all be added to the list.

Long-Term Unemployment Increases

Although unemployment figures in the U.S. have remained steady at 10.0 %, long-term unemployment has continued to increase. Long-term unemployment is defined as more than 27 weeks unemployment. 39.8% of unemployed Americans, or 6.1 million Americans have been unemployed for at least 27 weeks as of December 2009. This compares to 22.9% of unemployed Americans, or 3.5 million Americans suffering from long-term unemployment in 2008.

In November 2009, Federal Reserve officials predicted modest economic growth and predicted the jobless rate would drop to between 8.2% and 8.6% in 2011. Still, the Fed cautioned it would take 5 or 6 years for the jobless rate to drop down to pre-2007 levels. Others suggested even longer.

Not all economists agree with these predictions. Some are suggesting unemployment will climb to 10.5% before declining late in 2010.

Either way, 2010 will not be 'business as usual' no matter how much profit Wall Street rakes in. Prudent management of companies, regardless of scale or industry, will do well to keep an eye on expenses as we move into a cautiously optimistic, but uncertain, economic future.

Will 2010 be a Better Year?

Yesterday, the United Nations came out with a positive forecast for the global economy for 2010. The primary drive will be from Asia. The U.S. is also expected to see modest economic growth.

Nevertheless, the U.N. cautioned the growth will be 'fragile' and could fail if stimulus spending stops and if the U.S. deficit and external debt continues to climb. Such a crisis could cause global instability.

No word yet on how continued stimulus spending will not lead to a (at least temporary) increase in both the U.S. deficit and external debt.

There is a lot of talk about a looming 'double dip recession' (also mentioned in the U.N. report). There is also a lot of talk about the likehood of 'modest growth' and a 'fragile economy'. I think it's more a case of both cautious optimism and having it both ways. If the economy grows, it was predicted. If it fails, it was mentioned as a realistic possibility.

On that note, I'm not going to be any different. I think 2010 will be better although how much of this is based upon wishful thinking I can't say. Suffice it to say that everyone appears to be in general agreement that we still have a long way to go.

What this means for businesses is simple: stay focused. Don't lose sight of sound cost management practices. Put them in place now (if you haven't already done so).

Lack of Capital Still a Problem for Small Businesses

The recent news that commercial lending giant CIT Corp. is filing for bankruptcy can't be good for small and mid-sized businesses that rely on easy and cost-effective access to credit in order to survive.

Although experts are indicating that the short-term impact for retailers will be modest, there is less certainty about the impact by spring. John Holub, president of the New Jersey Retail Merchants Association indicated that the economy might turn around by this time, leading to alternative financing opportunities.

What if he's wrong? Banking (no pun intended) on a stronger economy is not a great strategy. Companies should always have contingencies for the worst economic times. Anyone can manage in a good economy. Surviving in a tough economy takes preparation and foresight, two key elements of effective management.

What strategies are companies putting in place to keep costs down and to maximize productivity? These should be the areas of focus. There is never a time when good expense management is unimportant, but there are times when it is paramount. Now is such a time.

U.S. Debt Approaching $12 Trillion

I had to post this link to the new Calculator developed that has 16 digits...in order to show the U.S. debt which was $11,792,918,170,836.43 on Sept 1st.

this is a sobering thought in light of the rosy economic predictions coming out of Washington. Layoffs have continued, although at a slower rate but there are some signs that a recovery is beginning.

The stimulus package has had a positive impact and this will likely lead to improvements next year. Vehicle sales were positively impacted by the 'Cash for Clunkers' program and total vehicle sales will likely be higher next year. However, recovery is not going to happen overnight.

Still, in case some of you are thinking that everything is fine again, take a look at the debt. You may have to purchase the new calculator as most calculators are unable to display the number.

Expert Predictions are on Par with Chance

This is a very interesting article which appeared in the New York Times by NICHOLAS D. KRISTOF on March 26, 2009.

What's interesting is how 'Hedgehogs'- experts with strong convictions who tend to see things in black and white - provide better 'soundbites' and are thus featured more prominently than 'Foxes' - who are more pragmatic and cautious and tend to be more accurate in predictions - but don't get as much air time due to providing less impressive 'soundbites'.

Something we should all keep in mind when we listen to experts making strong statements about the economy (or anything else for that matter).

http://www.nytimes.com/2009/03/26/opinion/26Kristof.html

Will the Economy really recover by 2010?

There have been some rosy predictions about the economy lately. Federal Reserve chairman Ben Bernanke predicts the recession will end by the end of this year and the recovery will begin in 2010. Markets have rallied with news the U.S. government is pumping $1.15 trillion into the financial and housing markets.

On the other hand, we are still seeing housing prices fall and unemployment figures are continuing to rise. Factor in that AIG is not exactly financially healthy and we have the recipe for disaster. Apparently, AIG requires bonuses to keep their 'talent' - the same talent that got them into the mess in the first place. The bonuses are supposedly to ensure they don't leave and force AIG to require another massive bailout.

Additionally, we aren't seeing a sudden surge in consumer spending, nor are we seeing a recovery in the auto industry. I think Mr. Bernanke is looking at different numbers than I am. Of course, one can reasonably argue that half the problem, and thus half the solution, is consumer sentiment. If optimism returns, people may begin to spend again, which will, presumably, strengthen the economy.

On the other hand, with consumer debt at record highs, maybe spending money we don't have is part of the problem. Combined with a huge government debt which is steadily climbing and the fact that China has indicated a concern the U.S. is simply printing money, thereby devaluing China's investment in the U.S. and we are faced with a less rosy outlook.

Quite frankly, I don't see an end to the recession by the end of the year. I certainly don't see a recovery by 2010. I hope I'm wrong of course as nobody wants to be the harbinger of doom, but I just don't see how everything will turn around in a year.

Pushing through massive stimulus packages quickly may be required to help the economy but the risks of abuse, poor decisions, and recklessness are directly proportional to the speed with which the bailout is implemented.

A bit of a catch-22.