Key indicators say U.S. economy will avoid a recession and rebound in mid-2008: CIBC World Markets
TORONTO, Jan. 18 /CNW/ - CIBC (CM: TSX; NYSE) - 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. "It's much the same for the ISM factory index, which while below 50 in January, is again 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." While the bank forecasts only barely positive growth in the first quarter of 2008, Mr. Shenfeld expects the American economy to rebound in the second quarter and beyond. 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." The report also notes that today's U.S. economy simply isn't as important to the global economy as it used to be. Whereas in the late 1990s, American economic growth accounted for nearly 30 per cent of global growth, today it accounts for only 10 per cent. And 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." Mr. 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." He notes that the U.S. economy has also 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. "Contrast that with 20 per cent-plus annual growth rates in metals demand in China and it's suddenly easy to see why prices for key base metals like copper remain in the stratosphere even if the U.S. economy is going into the toilet." "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." The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/sjan08.pdf CIBC World Markets is the wholesale and corporate banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.
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For further information: Jeff Rubin, Chief Strategist and Chief Economist, CIBC World Markets at (416) 594-7357, firstname.lastname@example.org; or Avery Shenfeld, Managing Director and Senior Economist, CIBC World Markets at (416) 594-7356, email@example.com or; Kevin Dove, Communications and Public Affairs at (416) 980-8835, firstname.lastname@example.org