The U.S. economy is picking up momentum.
New reports released Thursday showed American households increased their purchases for a fifth consecutive month in November, while companies recorded an increase in orders for capital goods such as computers and communications gear.
A closely watched gauge of consumer confidence rose last month and the number of Americans filing for jobless benefits declined by 3,000 last week, dropping the four-week moving average to the lowest since mid-2008, according to Deutsche Bank.
The final batch of economic data before the Christmas holiday had economists revising higher the predictions for economic growth in the fourth quarter and next year. BMO Nesbitt Burns now predicts the world’s largest economy will grow at an annual rate of 3 per cent over the final three months of 2010, a pace that should translate into enough jobs to pull lower the U.S.’s sky-high unemployment rate of 9.8 per cent.
Thursday’s indicators add to evidence that the U.S. economy might finally be gaining traction after a summer and autumn dominated by worries over persistent joblessness, vitriol over the Federal Reserve’s controversial plan to pump a further $600-billion (U.S.) into the economy and political uncertainty brought on by November’s mid-term elections.
Earlier this month, President Barack Obama and congressional Republicans struck a surprise agreement to cut taxes and extend unemployment benefits that economists predict will provide significant economic stimulus next year. Other data suggest the economy already is gaining strength. Retail sales gained more than most Wall Street analysts were expecting in November, exports jumped to a two-year high in October and surveys this month show factory production is ramping up.
“Sentiment on U.S. growth is clearly improving and for good reasons,” Jens Nordvig, head of G10 currency strategy at Nomura Securities in New York, said to his clients in his final note of 2010.
Faster growth in the U.S. is good news for Canada, which counts on its southern neighbour to buy about three-quarters of its exports. The International Monetary Fund said Wednesday that its forecast that Canada’s GDP will expand 2.3 per cent in 2011 depends greatly on the U.S. economy getting on track. Statistics Canada said Thursday that Canada’s GDP grew 0.2 per cent in October, less than the median estimate of 21 analysts surveyed by Bloomberg News. Stronger output by oil producers and miners outweighed weaker factory production and a drop in residential construction, Statscan said.
The most recent U.S. data isn’t universally positive. The housing market, the trigger for the worst recession since the Great Depression, is stuck at the bottom of the crater created by its collapse. New-home sales rose 5.5 per cent to a rate that would result in 290,000 over a year, less than the Wall Street consensus forecast and slower than September’s annual sales pace of 305,000. The November figure is 79 per cent slower than the record 1.4 million reached in 2005 and only 6 per cent faster than the all-time low of August, according to BMO analyst Jennifer Lee.
Also, the renewed enthusiasm over the U.S. economy has an end date. The higher growth forecasts are mostly the result of Mr. Obama’s tax compromise, which could add as much as 1 percentage point to GDP in 2011 at the cost of adding nearly $1-trillion to the country’s already massive deficit.
Many analysts predict the U.S. economy will slow again in 2012, weighed down by high unemployment and an oppressive debt that will either force governments to curb spending or lead to higher interest rates as bond traders demand higher yields to buy Treasuries. Newport Beach, Calif.-based PIMCO, which manages the world’s largest bond fund, revised its 2011 forecast for U.S. economic growth to between 3 and 3.5 per cent from between 2 and 2.5 per cent, but says the economy will struggle to reach 3 per cent for several years starting in 2012.
“It is important to stress that we see a one-year cyclical bounce in U.S. economic growth as a result of these monetary and fiscal policy measures, but also, that structural issues remain unaddressed, including the persistence and nature of elevated unemployment and extremely high public and private debt levels,” Saumil Parikh, a managing director at PIMCO, said in comments posted on the firm’s website Thursday.
“This forecast upgrade is a case of kicking the can down the road. We are once again borrowing from the future to enhance growth today.”
"Oil predicted to reach $100 per barrel for 2011"..
"I'm afread we're going to see $100 oil in the first quarter ".....
Crude oil markets are going out of 2010 like a lion – hitting two-year highs and raising predictions that prices will soon top $100 (U.S.) a barrel.
For motorists and businesses such as airlines and trucking firms, the surge in crude prices has meant a pre-Christmas crunch in fuel costs, with average Canadian pump prices now at their highest levels since October, 2008. And there is no sign they are about to ease.
“I’m not too surprised by the lift above $90 and I think we have some further gains here going forward,” Jim Ritterbusch, a veteran independent analyst based near Chicago, said in an interview Thursday.
“I’m afraid we’re going to see $100 oil in the first quarter – unfortunately.”
He said the fragile American recovery is being constrained by higher oil prices, which are driven more by higher demand in emerging markets but also buoyed by recent signs of economic growth in the U.S.
Crude prices closed at $91.52 per barrel in trading on the New York Mercantile Exchange on Thursday, their highest point since the fall of 2008, when they were plunging from record levels that summer.
Oil prices have been climbing throughout the final quarter of 2010, after trading below $75 for much of September, and have risen nearly 4 per cent this week alone.
Analysts credited further signs of U.S. economic growth, continued strength in key emerging economies such as China, and speculative buying as the U.S. Federal Reserve has increased liquidity in the economy and investors have sought havens for investment.
“There is some momentum to the U.S. economy – not all the data is great, but it looks like consumers are starting to spend,” said Michael Lynch, president of Strategic Energy and Economic Research Inc.
“So it is that, and you continue to have the Fed putting money into the economy. And some of that is going into the oil space. But we’re not out of the recession yet by any means, so it certainly seems the fundamentals have not brought us back to these highs, at least not by themselves.”
Many analysts expect crude prices to retreat later in 2011, as supply from both the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries ramps up. Unlike during the previous bout of triple-digit crude prices, OPEC has up to 6 million barrels per day of spare capacity. Most of that is in Saudi Arabia, which typically aspires to maintain moderate crude prices in order to encourage long-term global demand and discourage non-OPEC supply.
At the same time, Iraq is rebuilding its oil production capacity and is now pumping some 2.5 million barrels a day, with a target of at least doubling that.
As crude prices climbed this fall, gasoline, diesel and jet fuel costs rose sharply. Refiners who were under considerable pressure in 2009 have been able to rebuild their profit margins and pass through high feedstock costs to consumers.
In Canada, pump prices averaged $1.117 (Canadian) per litre this week, according to MJ Ervin & Associates. That’s the highest pump price since the week of Oct. 7, 2008, and 17-per-cent higher than the price of a year ago. Regular, unleaded gasoline hit an all-time high of $1.401 in July, 2008, when crude peaked at $147 (U.S.) per barrel.
Industry analyst Michael Ervin said refiners have not completely restored their traditional margins, and will remain under pressure given sluggish U.S. demand and an ongoing over-capacity in the refining sector. Canadian prices are heavily influenced by the American market.
Still, holiday motorists will be facing the highest December fuel prices on record, and transportation companies are feeling the crunch.
North American airlines may be poised to boost fares with fuel surcharges as crude oil moves closer to $100 a barrel, analysts said.
“Every dollar that fuel rises erodes their earnings,” Jim Corridore, a Standard & Poor’s equity analyst in New York, told Bloomberg News. “It’s not good news to see fuel prices back up. Once we start approaching $100 a barrel, you’ll start to see fuel surcharges come back.”
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