Mann at Work

Aug 2 2007 5:38AM | Permalink | Email this | Comments (0) |
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The Bureau of Economic Analysis (BEA) reported today that economic growth in the United States had a strong second quarter, increasing at an annual rate of 3.4%.

Meanwhile, north of the border, Statistics Canada reported that the Canadian economy grew 0.3% in May from the previous month.

The Canadian figure was a little lower than many watchers expected in May, since retail sales had surged 2.8% in the same month (their biggest monthly gain in nearly 10 years). As a result, most analysts expected Gross Domestic Product (GDP) to grow at a slightly faster pace.

In general though, the economic outlook for Canada is positive and that can be directly attributed to the Canadian consumer, who is still shopping with gusto. The soaring rise in retail sales is proof of this, and has prompted economists to raise their forecasts for Canada’s economic growth for the remainder of the year.

However, the consumer is behaving very differently in the United States, raising concerns that sluggish consumer spending may take the U.S. economy’s momentum down with it.

As U.S. residential construction remains in the doldrums, gasoline prices soar, and financial markets fall, the question is, will the U.S. consumer be prepared to spend in order to keep the economy’s momentum going?

In the next few months, it would be wise to keep an eye on inventories of unsold homes, the tightening of lending terms on subprime mortgages, stock prices and the unsettled credit markets. These indicators — and the consumer’s response to them — will offer signs that help economists to predict the U.S. economy’s results over the next several quarters.

U.S. GDP* increases at3.4% annual rate in second quarter
*“Advance” numbers

Real Gross Domestic Product (GDP) in the United States increased at an annual rate of 3.4% in second-quarter 2007, according to the BEA’s advance estimates. In the first quarter, real GDP increased 0.6%.

Positive contributions to the increase in real GDP came from:

• Non-residential structures;
• Services;
• Exports;
• Federal government spending; and
• State and local government spending.

On the other hand, lower residential fixed investment partly offset these positive categories.

The BEA will release its second-quarter "preliminary" estimates, based on more comprehensive data, on August 30, 2007.

Canada’s real GDP increases 0.3% in May
Economic activity in Canada increased 0.3% in May 2007, according to Statistics Canada. May’s growth can be attributed to significant increases in retail and wholesale trade; however, a significant drop in oil and gas exploration dampened GDP somewhat.

The strength of the service industries (+0.5%) more than offset the decrease in the production of goods (-0.1%). Gains were seen in services, construction, manufacturing, mining (excluding oil and gas) and utilities.

Non-residential construction makes strong contribution to Canada’s real GDP
The construction sector rose 0.6% in May. The strong +2.6% showing in non-residential building construction and +0.4% in engineering and repair work eclipsed the 0.1% decline in residential construction.

There was particular strength in the industrial and commercial buildings categories.

While construction of apartments and other multi-unit structures increased, along with renovation activities, single-family home construction continues to be the sore spot in residential construction.

However, the home resale market rose sharply in May. In fact, the number of units sold reached an all-time high for the second consecutive month. This level of activity created a robust 2.4% increase for the real estate agents and brokers industry.

Manufacturing activity advances, but industrial production slips
The manufacturing sector rose 0.3% in May and, of the 21 major manufacturing groups, 11 of them increased. These 11 also accounted for 54% of total manufacturing value added.

Significant increases were seen in

• Fabricated metal products;
• Plastics and rubber products;
• Textiles and clothing;
• Beverages and tobacco; and
• Meat products.

Industrial production (the output of mines, utilities and factories) slipped 0.2% in May. The drop in mining was partially offset by gains in manufacturing and utilities. In the United States, industrial production decreased 0.1% in May, due to the drop in utilities, while mining moved ahead and manufacturing was unchanged.