The U.S. economy is not in a recession and not likely to get there, finds a new report from CIBC World Markets.
While many aspects of the U.S. economy are showing weakness, the report notes that dozens of temperature readings—from employment numbers to factory indexes—show the American economy is simply in a typical mid-cycle slowdown.
“It’s evident that the U.S. is not in recession,” says Avery Shenfeld, senior economist at CIBC World Markets. “December payrolls gains weren’t pretty, but they had a plus sign, and the more reliably estimated three-month average pace was no weaker than in what proved to be only mid-cycle slowdowns.”
He notes that while the ISM factory index was below 50 in January, it is no weaker than in past mid-cycle slowdowns. “Leading indictors for the factory sector don’t look all that bad, likely capturing an improvement in global competitiveness from a weak U.S. dollar. Factory orders, for example, have been climbing,” says Shenfield.
Shenfeld expects the American economy to rebound in the second quarter and beyond after a period of barely positive growth in the first quarter of 2008. He cites the protective benefits of recent measures to avoid the worst case scenarios for subprime defaults and lagged impacts of U.S. Federal Reserve Board interest rate cuts as key drivers behind the rebound.
He also expects a positive boost from increased U.S. trade activities, as American exporters reap the benefits of a cheaper dollar. “And in an election year, both Congress and the White House are moving to cobble together a quick stimulus package to put money into voters’ (and consumers’) pockets soon,” he adds.
The report also notes that today’s U.S. economy isn’t as important to the global economy as it once was. In the late 1990s, American economic growth accounted for nearly 30% of global growth, today it accounts for only 10%. And, according to today’s report, that loss is much greater when it comes to impacting resource markets.
“US$90 crude prices and US$3.20 copper prices seem to be defying American economic gravity,” says Jeff Rubin, CIBC’s chief economist. “Either the U.S. economy is not nearly as weak as financial markets perceive it to be, or the U.S. economy is not nearly as important to the global economy as it once was.”
Rubin notes that U.S. consumption of core commodities is flat or declining and represents an increasing smaller part of the global market.
“While the U.S. is still by far the largest oil-consuming economy in the world, guzzling 21 million barrels per day, its contribution to global demand growth for oil over the last two years has been nil. In fact, oil consumption has fallen modestly over that time frame, and that was during a period of reasonably robust economic growth.”
Rubin says the U.S. economy has made no contribution to the surge in global metal demand over the last half decade. American consumption of zinc and copper has actually fallen over the last five years and consumption of aluminum and nickel has been basically flat over the same period.
“Whether the U.S. is heading for a recession or just a mid-cycle slowdown remains to be seen. But the more important question for crude, base metals and other resource markets, is whether it really matters anymore.”