Don’t be fooled by the underwhelming U.S. economic indicators in early 2015. Although the severe winter and west coast dock slowdown may have delayed it, a higher growth trend is coming. The unemployment rate is now down to 5.5% and there have been almost 1.8 million jobs created over the last 6 months, though companies are pulling back in business capital spending. Oil production continues to increase (and prices continue to decrease), benefiting both consumers and the energy-intensive manufacturing industry. This, in turn, is supporting the U.S. housing recovery. Although there are worries that a preemptive Fed tightening could disrupt U.S. growth, Fed Chair Janet L. Yellen assures us that future rate increases will be small and spread out.
In Canada, it’s a different story. Oil price shock has slowed overall economic growth, which is now concentrated in energy-consuming provinces like B.C. and Ontario where employment, retail sales, manufacturing and housing markets remain strong. Economic indicators will likely soon confirm a decline in overall economic activity in Alberta, Saskatchewan and Newfoundland, skewing the national average downward. Fortunately for energy-producing provinces, overall U.S. oil production may slow this spring, providing a big psychological boost to the price of oil and the CAD. Both could show significant rebounds this summer, though the energy outlook will not really stabilize until the fall. In addition, while housing starts in Canada have peaked and new construction is expected to decline over the next two years, residential renovation spending will likely be a bright spot in our economy.
International markets remain weak. Euro area industrial output is flat and China is showing signs of industrial slowdown. The recent increase in oil prices reflects a concern that escalation in Yemen could affect global oil supplies.