The positive outlook – a stretch of much stronger U.S. growth stretching through 2014 and 2015, and a normal cyclical recovery through the rest of the decade – has a strong foundation. The economy and tech cycle are speeding up once again and we have entered a long economic and technology cycle. The outlook is good through the rest of this decade and we can expect some positive surprises. We are in a new era of innovation in many industries – oil & gas, health, finance and tech infrastructure accelerators such as cloud computing.
The U.S. oil boom and manufacturing revival are the key transformative economic factors in the 2014 U.S. economic rebound, which will also recharge and accelerate the IT cycle. Employment figures in the U.S. are up, with a widespread increase of 220,000 payroll jobs. Companies are profitable, with ¾ of the S&P 500 companies exceeding profit expectations in the 1st quarter. The business/professional services category shows particularly strong employment gains. In addition, companies in a number of Federal Reserve Districts report difficulty finding skilled workers.
Internationally, Europe’s weak banking system will hold back its recovery for at least another two years. Bank credit is shrinking in Europe and the current stress tests are likely to show that its banking system is under-capitalized.
China’s slowdown will not be resolved quickly. It is struggling with its own real estate bubble and banking system problems. The slower growth trend in China is affecting the other EMEs that depend on Chinese demand for agricultural products, metals and energy.
In contrast to the U.S., Canada’s economy is out of balance. It is relying too heavily on consumer spending. Employment growth is narrowly concentrated in Alberta. Housing construction has peaked and will decline this year. Business investment is focused on safe projects. Canada’s exports are basically all priced in USD. The change in currency will not affect the price that Americans pay and will not make Canadian goods more competitive. Looking ahead, Canada will not match the U.S. acceleration.
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