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

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