After its national economy shrank 2.9% on an annualized basis in the first quarter, the U.S. recovery is back and looking stronger than it has in years. This bodes well for our domestic recovery, says economist Thomas Feltmate of TD Economics.
“There are a lot of good reasons to be optimistic,” Feltmate told me in an interview on Monday. “We’re seeing employment numbers coming in a lot stronger. Housing numbers have improved of late. We’ve seen a rebound in housing and that’s certainly positive.” TD is forecasting annualized growth rates above 3% in each of the remaining quarters this year. “We’re going to have 2.2% for the year as a whole,” said Feltmate. “Still not great, but certainly an improvement from Q1, which of course was affected by the weather. We’re trending in the right direction here.”
This contrasts with the less sanguine opinion we heard from Philip Cross late last month. Cross runs The Conference Board of Canada’s composite leading index. Referring to the deceleration of the U.S. leading indicator in his study, Cross told me he wasn’t optimistic about the U.S. recovery.
“It was chugging along last November at .7% growth, which really gave you hope that the U.S. was finally starting to break out of this slow-growth syndrome that it’s been trapped in for several years now,” he said. “But the U.S. leading indicator is now slowed back to .4%, matching the Canadian increase. So I have a real concern that the U.S. isn’t about to have its breakout.”
In a report published Friday, Feltmate laid out three reasons for his optimism:
- The labour market keeps improving. The U.S. economy added 288,000 jobs in June, well above the consensus forecast. It’s the fifth straight month in which job gains topped the 200,000 mark. Auto sales — which last month reached a high not seen since 2006 — are one example of a boost in consumer confidence evident south of the border.
- Household income and personal savings are both moving in the right direction. “We’re certainly seeing some good numbers in terms of income growth,” Feltmate told me. This goes hand in hand with the strong jobs reports.
- Business leaders are joining the party. Credit conditions are improving at the same time analysts are forecasting strengthening investment levels. “We’ve seen this easing of credit conditions for business loans,” he said. “We’re also seeing it in terms of the number of loans coming out. The bottleneck that businesses have experienced — in terms of not being able to get loans — has eased. That’s another sign of optimism.”
A similar easing of credit conditions is going on here at home, according to a study released by the Bank of Canada on Monday.
At the very least, all of this suggests better times ahead for Canadian exporters. “The U.S. accounts for about 70% of Canadian exports,” said Feltmate. “Stronger demand on that front is going to filter through into stronger growth in Canada.”