The background on the US debt and why Obama is doing a good job
There is lots of Obama bashing going on – mostly fueled by Fox News.
I am not political at all, and do not comment on it in general, but economically speaking Obama is doing all the right things: keeping up government spending to fuel the recovery and cutting taxes to reduce the debt. This is textbook economics.
the Bush tax cuts are one of the biggest problems, and as you can see, the US rich are getting what they want – keeping the tax cuts.
See below, this most excellent chart, of the size of the mess that Bush handed over to Obama and what he has to work with. A pretty poor hand to start with.
Obama’s and Bush’s effects on the deficit in one graph
From the New York Times :
What’s also important, but not evident, on this chart is that Obama’s major expenses were temporary — the stimulus is over now — while Bush’s were, effectively, recurring. The Bush tax cuts didn’t just lower revenue for 10 years. It’s clear now that they lowered it indefinitely, which means this chart is understating their true cost. Similarly, the Medicare drug benefit is costing money on perpetuity, not just for two or three years. And Boehner, Ryan and others voted for these laws and, in some cases, helped to craft and pass them.
To relate this specifically to the debt-ceiling debate, we’re not raising the debt ceiling because of the new policies passed in the past two years. We’re raising the debt ceiling because of the accumulated effect of policies passed in recent decades, many of them under Republicans. It’s convenient for whichever side isn’t in power, or wasn’t recently in power, to blame the debt ceiling on the other party. But it isn’t true.
Variable rates are still good
In a time characterized by widespread economic turmoil across the US and Europe, there was a certain comfort to be taken in the mundanity of the Bank of Canada’s (BoC) report today. As almost unanimously predicted, the BoC left overnight rates unchanged at 1%, meaning the prime rate stays pegged at 3% and the variable rate mortgage holders of Canada continue to prosper. However, there were some nods towards a rate increase approaching on the horizon. The quote of the day being the warning that monetary stimulus “will be withdrawn”, a statement whose severity is underscored by the omission of the word “eventually”, which was mentioned at the BoC’s May 31st meeting.
However, it is our contention that we are unlikely to see rate increases at the next meeting, in September. A far more likely target would be December at earliest or, more likely, early next year. This prediction comes with a backdrop of increasing pessimism concerning the US. It is our belief that the US policies for growth, characterized by strict austerity measures, could see the US plummet into an economic purgatory from which it may find it hard to escape. This would restrain the BoC from making any substantial rate hikes and, while an increase in rate is almost certainly just around the corner, a series of hikes may not be sustainable. When you add this to the increasing likelihood of Greece’s loan default and now the potential inclusion of Italy into the economic abyss, the case for dramatic rate hikes only erodes further.
While the Bank of Canada will likely act to stem core inflation, which it has highlighted as “slightly firmer than anticipated”, the prevailing consensus remains that this is being driven by “temporary factors”. The bottom line is that we think the 40% of Canadian home owners who are now in variable mortgages can rest assured that they’ve made the right option. Obviously if you’re not comfortable with the inherent risk associated with variable mortgages there’s always the fixed option and it’s rare to see fixed rates so low, so it’s a nice option to have.
If you should have any questions on anything you’ve read here or are interested in perhaps switching to a variable rate mortgage and would like some of our sound, unbiased mortgage advice then we suggest you give us a call today at 403-681-4376.
The case for using a broker has never been stronger, with more and more Canadians beginning to realize that savings associated with utilizing the services of a broker. We’ve included a link to this Bank of Canada report outlining the savings on “search costs” which brokers provide. They demonstrated that “over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points.” For all those mathematically limited soles like me, that means $1,670 of interest savings on a typical $200,000 mortgage over five years. Don’t be one of those people who let the comforts of a familiar bank name dissuade you from making the savings available to you. Call Mark Herman today!
Consumer Prime stays the same at 3% – but for how long?
Prime stayed at 3% today and as below rate hikes are coming as soon as we are past the recession for good. These super low rates are the tail end of the recession so take advantage of them while you can. Call to discuss what that means for you. 403-381-4376
Bank of Canada sees hikes on the horizon
Bank of Canada governor Mark Carney.
Photograph by: Reuters
OTTAWA — The Bank of Canada held its benchmark interest rate steady on Tuesday, as widely expected, as the global economy remained fragile amid debt problems in Europe and the United States.
But the central bank hinted higher borrowing costs could be coming sooner than later if the domestic economy maintains steady growth.
The bank’s lending rate has been at a near-historic low of one% since last September in an effort to spur economic growth following the downturn.
“To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn,” the Bank of Canada said in its interest rate statement. “Such reduction would need to be carefully considered.”
Avery Shenfeld, chief economist at CIBC World Markets, “may be nudging the market into pricing greater odds of at least a modest dose of interest rate hikes before year end.”
“It dropped the word ‘eventually’ in reference to the need for rate hikes ahead, and while saying some of the pressure on core inflation is ‘temporary,’ it also attributed some to ‘more persistent strength in the prices of some services’.”
The Bank of Canada on Tuesday also revised its economic growth outlook for 2011 to 2.8%, down from the previous estimate of 2.9%. Left unchanged were growth forecasts for 2012, at 2.6%, and 2013, at 2.1%.
“Of course, the troubles abroad and challenges to net exports kept the bank from hiking as early as today, and it is still assuming a resolution of the eurozone debt issues,” Shenfeld said. “But signs of better growth in the U.S. and Canada in the second half would clearly be enough to tip the bank into hiking, and we should have enough of that evidence on hand by October.”
Still, some economists have pushed back the possibility of a rate hike until early next year due to continuing uncertainty outside Canada’s borders.
“Weighing-in on the stand-pat side, the U.S. economic soft patch is dragging on, as we count down to potential ‘credit events’ on both sides of the Atlantic,”said BMO Capital Markets economist Michael Gregory.
“Pulling on the tighten-soon side, Canadian domestic demand performance in Q2 might not be as bad as initially posited, owing to a surprising surge in home construction, while the output gap could be smaller . . . and closing quicker . . . if the latest Business Outlook Survey is any guide.”
The Bank of Canada is expected to provide more details on its economic outlook on Wednesday when its releases its Monetary Policy Report.
Alberta to top province for economic growth
Oil to drive Alberta to top province for economic growth:3.8% forecast for next two years
CALGARY — Alberta will lead the country in economic growth this year and next year, according to a report released Wednesday by Scotia Economics.
The report says real GDP growth in the province will be 4.2 per cent this year, the highest in the nation, followed by 3.3 per cent growth in 2012, which will tie Saskatchewan as the highest in the country.
Scotia Economics is forecasting Canadian economic growth of 2.7 per cent this year and 2.5 per cent in 2012.
“Alberta will once again lead Western Canada’s outperformance, with growth averaging nearly 3.8 per cent in 2011-12,” says the report. “Heavy oil output is being ramped up, with further investment and construction activity underpinning a multi-year period of solid growth.
“The manufacturing and service sectors will experience a positive spillover as physical and human capital are added to support the expansion. However, rising construction and labour expenses will also weigh on business costs, and may pressure capacity towards the end of the forecast period.”
The report says the oil sector will continue to be Alberta’s growth engine with significant investment and output gains contributing to the increased momentum. Total crude oil output is projected to expand by nearly 30 per cent from current levels by 2012, bringing total production to 50 per cent above 1999 levels, it said.
“Alberta is expected to lead the country in job creation over the 2011-2012 period. The province lagged the national pickup in hiring earlier this year, but has been gaining momentum ever since. Alberta has one of the tightest labour markets in Canada, which is expected to put increasing pressure on wages,” says Scotia Economics.
Employment growth of 2.7 per cent this year and 1.8 per cent in 2012 is forecast for the province.
Rates increasing from 111-year, all-time lows now or soon!
Below is a great blurb on what is happening with yo-yo predictions of the future of mortgage rates. Get pre-approved now, consider locking-in if you were going to OR redo your mortgage now for the last of these low rates!
OPINION:
The laws of gravity dictate that what goes up must come down but I’m afraid, when it comes to the laws of economics and interest rates, what goes down must come up. Ultra-low interest rates are only a short-term solution and not sustainable in the long run. This is something which all economists agree on. Unfortunately this is the point where the common consensus ends and opinions diverge. The issue which is most divisive amongst the experts at the moment is exactly when these rate hikes will begin. As recently as a month ago many experts were predicting that rates would remain at their current levels until as late as March of 2012. A tumultuous week in the markets has seen many of these experts revise their predictions, with many now citing September as the month to bring a halt to the rate freeze.
Surprising inflationary reports for May demonstrated the fastest annual rate in eight years. While Mark Carney previously highlighted the transient threat of rising gas prices, which witnessed a 30% rise, gas prices were not alone in driving the inflation. Even the core rate, which strips out the more volatile prices of food and fuel, rose to a rate of 1.8%, quickly racing towards the Bank of Canada’s 2% target rate. With Canadian inflation now standing at 3.7%, exceeding those of Australia (3.3%); Mexico (3.3%); Chile (3.3%) and Columbia (3.0%) the calls for increased rates have grown ever louder. The fact that these countries all have short-term rates exceeding 4%, while Canada’s lingers at 1% only strengthens the case for a rate increase.
This week also saw a dramatic surge in 5 year bond yields. On Monday the yield had fallen to 2%, leading many to speculate that lenders would be forced to further drop fixed rates, which have already been subject to a series of slashes in the last few months. However these calls were short-lived as yields rebounded strongly in the face of the inflation report combined with renewed hopes that the European Central Bank could be able to prevent the default of Greek debt.
So what does this mean for your mortgage?
It means that if you are looking for pre-approval for a purchase or refinance there has never been a better time to secure your rate with Mortgage Mark while rates are still low. For those of you in a variable rate we’d like to reassure you that we still think this is still a good option. However our variable rate clients should prepare their finances and make sure they will be able to handle a potential increase to their payments coming in September. If you would like further details on any of the information listed here we implore you to call Mark Direct at 403-681-4376 for our sound, unbiased mortgage advice.
Don’t be afraid to leave your bank for a better rate
Don’t be afraid to leave your bank for a better rate
Jay LaPrete
A new survey from CMHC says the vast majority of Canadians renew their mortgages with their original lender, but you can save thousands over the life of a mortgage by looking at competing rates from competing institutions and mortgage brokers.
Garry Marr, Financial Post · Jun. 23, 2011 | Last Updated: Jun. 27, 2011 7:47 AM ET
Are the banks doing an incredible job of retaining customers or are Canadians just too lazy to shop around when renewing their mortgages?
One finding of a survey by Canada Mortgage and Housing Corp. released this week was that 89% of consumers renewing their mortgage stay with the same financial institution. And 68% stay when they are doing a refinancing.
“They stay with the lender because of rate and they leave the lender because of service,” says Pierre Serré, vice-president, insurance product and business development, with CMHC.
Consumers are more aggressive shoppers when they are seeking a mortgage to buy their first home than they are upon renewal. Only 57% of first-time buyers took out their mortgage with their existing financial institution.
Rob McLister, a mortgage broker and editor of Canadian Mortgage Trends, says the banks are doing more to retain customers but there is a pretty good chance you won’t get the best deal if you renew automatically.
“Most of the time people do some rudimentary research before they go back to their lender. Not so long ago people would just take the renewal letter, sign it and send it back. It still happens but not as much anymore,” he says.
Mr. McLister says the banks “are not as stupid” now and when they send out renewal rates they have special offers. The posted rate on a five-year fixed closed mortgage today is 5.39% but he’ll see clients get offers in the mail as low as 4.04% in a renewal letter. The problem is a broker could probably get you 3.59% — meaning you just left 45 basis points on the table.
On a $250,000 mortgage at 4.04% paid monthly and amortized over 25 years, the monthly payment would be $1,320.48, with the interest cost during a five-year term at $47,014.79. Chop the rate down to 3.59% and the monthly payment drops to $1,260.09 ,with the interest over the five years falling to $41,658.85.
If you were crazy enough, or lazy enough, to take the posted rate, you would pay $1,510.01 monthly for the same mortgage and your interest cost would jump to $63,201.92.
Let’s just say it pays to shop around. So why don’t more people do it?
There is a perception that it’s difficult to switch banks, plus it will cost you some money to switch. Yes, it’s a hassle but for $5,000-plus, count me in. As for the costs, the bank you are switching to will often cover your legal costs. Even if it doesn’t or say you face a discharge fee of $300, that’s small price to pay upfront.
Mr. McLister says if you change the terms of your mortgage and refinance, it could cost you as much $700 to switch, something you would have to do if you have a home-equity line of credit or have a collateral charge on your mortgage.
Elton Ash, regional executive vice-president with Re/Max of Western Canada and a long-time realtor, says for most people if the customer service is good, they stay.
“Unless the lender has really screwed up, they stay,” says Mr. Ash says. “It’s like realtors, not all of them charge the same fee. There are lots of discounters out there but it’s based on service levels more than costs and fees, if it’s relatively competitive.”
The banks are more competitive these days for existing customers. Part of the reason is it can cost a financial institution up to 30 basis points to attract a new customer, so why not just spend the money on retaining existing customers?
“We start calling customers in advance to remind them their mortgage is coming up,” says John Turner, director of mortgages at Bank of Montreal. “It is an increasingly competitive marketplace and customers are shopping. It’s in our interest to advise the customer of their options. That could include refinancing the mortgage overall.”
Farhaneh Haque, regional manager of mobile mortgage specialists with Toronto-Dominion Bank, says her bank starts calling customers as much as 120 days before renewal to discuss options.
“This all about relationships, they are not going to up and leave for a five-basis-point difference,” Ms. Haque says.
She’s right. A 0.05 percentage point is not a great reason to sever your relationship. But renewal time is a great time to test your relationship with your bank and get it to show you some love — or a better rate.
Financial Post
gmarr@nationalpost.com
Too Big To Fail
Too Big To Fail
This is a re-post of a great blurb by Boris Bozic, President of MERIX, a broker only lender. He is a pretty smart gent and his light and direct points are worth the 3 minutes it takes to read this.
28 Jun
This was a term we were all too familiar with back in August and September of 2008. It is also the name of a new HBO movie which chronicles what transpired at the beginning of the sub-prime mortgage meltdown. HBO assembled an outstanding cast, and given the subject matter the movie was rather entertaining. I would highly recommend watching the movie. It is a good reminder to all of us that the term boom and bust is as applicable today as it always has been.
In typical Hollywood fashion, a liberal bias amounting to revisionist history, the movie tried to blame George W. Bush and Ronald Reagan for the meltdown, and all other evil things. The truth is you can go back to the Jimmy Carter administration, and the passing of the Community and Reinvestment Act. That work of art stated that home ownership was a right, and not a privilege. This is where the slippery slope began. Then old Slick Willie, aka “which way are the political winds blowing today because that’s what I’ll stand for”, Bill Clinton, put that program on steroids. Suffice to say the responsibility for the meltdown, and the nuclear fueling of the problem, is equal parts Republican and Democratic.
The movie is a great reminder of how perilously close we came to an economic meltdown. How our standard of living was at the precipice. If you think this is hyperbole, because this was really a US issue, the reality is that this carcinogen (sub-prime mortgages) infected world markets. I can’t help but to think about the auto worker in Windsor and Detroit, the welder in Germany, the machinist in France, all, asking the same question: “Tell me again why my pension has taken a hit because of some mortgage problem?” No one from Wall Street could explain what happened in laymen terms. The average person cares little about default swaps, derivatives and mortgage-backed securities. All the layman cares about is finding out who the hell let this happen. That question has still gone unanswered.
The movie doesn’t deal with the who. The movie played up of the part about the moral dilemma the government faced. Who did the government decide to bail out, AIG, and who did they allow to fail, Bear Stearns and Lehman Brothers. All very fascinating and dramatic. But after watching the movie I couldn’t help but ask myself the following question: “How the hell has no one gone to prison over this?” I’m all for a free market system, and the pursuit of wealth, but reckless endangerment of our economy and standard of living should not go unpunished. There were individuals and institutions who knew full well they were passing on toxic assets. They were passing on the risk so they didn’t care. They could care less about the consequences. Yet none of the perpetrators of this ingenious fraud has ever been charged or convicted. You would think at least a couple of them should be experiencing the joys of being passed around in prison for a carton of smokes.
New Virtual Closings for lawyers – the next thing on the way
Innovation In Unlikely Places – Introducing V-Close by Vanguard Law Group
- Sunday, 26 June 2011 13:42
Change is often the end result of something. Once in a while, change is introduced to create not only new results, but an entirely new direction.
Enter V-Close, the new virtual document signing service, for clients needing to sign documentation for a Real Estate purchase or sale transaction, born not only from the evolution of technology, but of an understanding of the preferences of the market for convenience, over all other benefits.
Innovation in Unlikely Places
Sanjay Soni, Managing Partner with Vanguard Law Group, recognizes the irony of the wave of change coming from a law group. In fact, the company’s tag line reflects the tongue in cheek nature of the birth place of this evolution: “Innovative Law Firm? Oxymoron? Not Anymore!”
Soni explains: “People are used to technology and access to information in certain parts of the economy, and in certain services. They are not used to it when it comes to legal services- in fact it is quite the opposite. “
“When people think of law firms, technology and innovation is not what comes to their head. We are going after a market that we think is quite untapped. Technology is around you all the time, every day- but when you think about having to go into a lawyer’s office that is not what comes in to your head.”
Much like in the Real Estate and Mortgage Industries, for Soni clients are not only who you do business with, they are why you are doing business at all, and refers to this as the impetus for the advances they have made “My philosophy is very simple: Unless you get clients, you don’t get paid…We wanted to bring a customer centric focus to a law firm… How do we do this? How do we make clients feel like they are getting value out of what they pay for, and really mean it?”
So then, in these client-centric industries, it is about understanding the value of an offering, and making the client aware of it.
What is V-Close?
Education and understanding are some of the cornerstones of communication- necessary for any productive relationship. For Real Estate and Mortgage Professionals, the question might be, why this service, and how does it work- so that they can support clients in weighing their options.
It’s simple really. For a fee comparable to traditional document signing, you essentially sit in your living room, or whatever location suits you, at a designated time, and await the arrival of the Commissioner of Oath.
Says Soni,” The way it works is that we have a secure video link between ourselves, and one of our remote commissioning agents. All of our commissioning agents are Commissioners of Oath, registered with the Attorney General’s office to Vanguard Law Group. “
“They have very modern laptops with dual flat screens. They go into a client’s home after an appointment has been set up. They will turn on their computers and establish a secure wireless link with our central office here in Mississauga, and at that point the clients can see me, and I can see them, and we go over the purchase or sale documents together. Once I’ve finished the explanation of a specific page, we get the clients to sign on a physical piece of paper that the commissioners have with them at the time of signing.”
Demographic Spread
One challenge that Realtors and Mortgage Professionals encounter is a one-size-fits all attitude to technology, as well to servicing the needs of their clients from different generations. Different generations have different needs, understanding, comfort level and expectations when it comes to technology.
What is common among clients though, is the appeal of an idea that they are empowered to pick and choose service in a location and a time that puts them first.
What is unique about this product is that it appeals across generations, for different reasons, as Soni points out, and the limitations from a demographic point of few are few. “We look at every individual who is over 19 as a customer, which is kind of neat. As long as you are selling, refinancing or purchasing a home, we have the service for you.”
This is demographic reach in action, with seniors happy that they don’t have to venture out of their homes (often a challenge for the most hale and hearty with Canadian winters), and for Gen X & Gen Y, they are drawn in by the technology itself.
“This is for every client. We’ve seen that the older demographic may not be into computers so much, however, they are into convenience. They actually understand the value of this to their time. The trade-off from the technology perspective is really their busy lives, and the convenience that this offers. “
“For the younger demographic, they may be first time homebuyers, so they may not realize the hassle involved with going into a lawyer’s office, but they get it from a technology perspective. “
Convenience is the catalyst
Pick an industry, any industry, and you will see clear evidence of evolution driven by delivering customers what they want. And in this age of instant information and convenient access to just about everything at hours that suit consumers, it only makes sense to be open for business when business is there.
To really understand a clients’ needs and wants, one must almost break down processes, working backwards, to understand its’ genesis- rather than just simply trying to market the end result.
As Soni agrees, when you start and finish with the client’s needs, the possibilities are profound.
“I think there is much broader application with what we are doing than just the legal industry… We’re not springing into different areas, but I had a meeting with my accountant the other day to sign paperwork, and the thought went through my head, why am I in your office? I’m signing this paperwork- I can be signing this on the bottom screen, while I can see you on the top screen.”
“There are tremendous implications here, if people think about what they do, and they break down the process of what they are doing and look at what the technological substitute might be, I think there is very wide application in the Real Estate Industry. Anywhere where you need to sign a piece of paper, it should be in an electronic format- and if you need to consult with someone, then you can basically do what we are doing.”
Soni says too, that they have begun to build upon their own design.” We have realized that we have the infrastructure in place- we can actually now create a draft will, based on a checklist, and send it to the customer and then go over the final doing exactly the same process- so now you can do a will at the same time as you are signing mortgage documentation.”
Bricks and Mortar Optional
Part of introducing and selling change, is dealing with objections- and objections and scepticism are not uncommon, especially in the areas of technology- as many consumers are afraid of things like fraud, identity theft and of compromising personal information.
Soni suggests that one must recognize these objections, and address them gently, offering alternatives, and assures too that in theory, there are no differences between a traditional document signing, and a V-Close.
“There is no difference on the other side. If they need to ask questions, they ask questions. If identification needs to be taken, it’s taken by the commissioning agents.
Everything is recorded, which actually enhances the process. From a fraud perspective, it is actually better, we think, than the process today. The Commissioner is key in all of this… We can basically replicate the experience from the office in your own home.”
What’s in it for Realtors?
In this competitive industry, Realtors are always trying to boost value in their relationships with their clients, as a means of standing out from the crowd. Soni says that V-Close offers an opportunity to do just that: “The value add for the agent is to say- You are busy people…Here is a law firm that not only has the technology, but will actually make it easier for you, where you don’t have to take any time off of work, or you don’t have to take any time in the evening… the experience that they have will be
unrivalled by other experiences that they might have- and that is simply based on their busy lives, and the conveniences that we offer.”
Service comes down to facilitation and ease, and Soni gives an example:”Last week- we had an actual signing in two cities at the same time. Father and Son were both on title on the home. The father was in Ottawa, the son was in Toronto. We had two Commissions at the same time, one in Ottawa, one in Toronto- and then I linked them in on my screen. They signed in two cities at the same time, and I did the explanation to both of them. ”
In client-centric business, sometimes there are challenges in meeting clients needs, and in coming up with new ways to over deliver- in ways that the client does not even expect. What this opportunity represents is a chance to give more to your clients, by anticipating their needs before they do. In knowing about the options, and presenting them with a solution that they don’t expect, perhaps because they don’t even know the technology exists, you communicate your own value, and set your service apart.
Canadian economy still near the top of G7
Great news below for anyone thinking of buying their 1st home, an investment property or worried about their job.
OTTAWA – Canada will continue to outperform most economically advanced countries over the next two years, even as the pace slows and risks mount, the IMF says.
The International Monetary Fund’s latest forecast presents Canada as a relative sea of tranquility amid rising global turbulence from European and U.S. debt issues, the aftermath of Japan’s natural disasters, and growing inflationary pressures.
This will result in growth in advanced countries of about 2.5 per cent this year, it says, about half a point lower than last year. And emerging economies as a group will suffer a one-point drop in growth to 6.5 per cent.
As well, the downside risks to the outlook have risen sharply since the IMF’s previous report in April.
“The balance of risks point down more,” it says. “Downside risks due to heightened potential spillovers from other further deterioration in market confidence in the euro area periphery have risen. Market concerns about possible setbacks to the U.S. recovery have also surfaced.
The report doesn’t mention Greece by name but the potential for its government to default on its massive debts — amid public opposition to austerity measures required by its lenders — have been unsettling financial markets.
“If these risks materialize, they will reverberate across the rest of the world — possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies,” it adds.
Despite this, the international financial organization sees Canada trundling along with 2.9 per cent growth this year, and 2.6 per cent next, virtually unchanged since its previous forecast. Those numbers are also identical to the Bank of Canada’s call, made in April.
The projections are in line with a new forecast from the TD Bank, which also sees the global economy slowing but Canada hanging on with 2.8 per cent and 2.5 per cent growth rates this year and next.
Among G7 nations, the IMF sees only Germany doing better with an expected 3.2 per cent expansion this year, but slowing to two per cent next year.
All the forecasters point to a soft spot in the economy occurring at this very moment, in part due to supply-chain disruptions from the Japan disaster.
For Canada, the lull will result in the economy slowing to just over one per cent during this current quarter, from a strong 3.9 per cent in the first three months of 2011.
Friday’s Statistics Canada report that wholesale fell 0.3 per cent in April, in volume terms, adds to the narrative of a struggling economy.
However, the vast majority of analysts view the lull as temporary.
“The fundamental drivers of growth remain in place: overall still-accommodative macroeconomic conditions, pent-up demand for consumer durables and investment, and strong potential growth in emerging and developing economies,” concludes the IMF analysts.
The big change in the report is the IMF’s alarm about future risks. It makes clear the world has come out of the recession, but is not all the way out of the woods yet.
It warns of a heightened potential for negative consequences from the European debt crisis, and fiscal hangovers in the U.S. and Japan.
The IMF says the two economic powerhouses must get their fiscal houses in order.
“For the United States, it is critical to immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform,” the group says, offering the same advice to Japan.
Earlier this week, Finance Minister Jim Flaherty offered a similar assessment in a speech in New York, warning that not only America’s economy would be impacted by failure to address the problem, but Canada’s and the world’s.
The Canadian Press http://www.therecord.com/news/business/article/549522–canadian-economy-still-near-the-top-of-g7
10 reasons not to panic
This may calm you if the latest economic info is getting you down.
The European sovereign debt crisis, a potential hard landing in China, weak U.S. economic data, and the U.S. debt ceiling debate have provided investors with plenty to worry about. Since none of these problems look like they will be resolved in the immediate future, don’t be surprised if global financial markets continue to be in a rough patch for at least a few more weeks.
Despite the unpleasant stew that is brewing, it is not noxious enough to either derail the economic recovery or upend the market rally of 2011, says Joseph P. Quinlan, chief market strategist at U.S. Trust, Bank of America Private Wealth Management.
In a recent research note, Mr. Quinlan points out that June is often a lousy month for equities, as the Dow Jones Industrial Average has fallen for the past six years.
“Early indications are that this June will be no better,” he says. “However, beyond the daily gloom and doom, investors should not overlook the fact that the financial markets and global accounting, while facing some stiff headwinds, also have a number of significant tailwinds working in their favor.”
The strategist provided ten reasons why investors should not panic.
1. Corporations are flush with cash
After a two-year profit boom, corporations are putting this money to work in the form of both climbing capital expenditures and hiring. At the same time, share buybacks and higher dividends are on their radars. So despite the deleveraging of U.S. households and the government’s credit limit challenge, the strong capital position of many corporations will be an important driver of the economic expansion in the medium term.
2. Unemployment numbers are misleading
The U.S. unemployment rate remains elevated at 9.1% in May 2011. However,95% of the skilled labour force is currently employed as workers with four-year college degrees or more have an unemployment rate of 4.5%. This cohort accounts for a disproportionate share of personal consumption.
3. U.S. exports are going strong
Total exports hit an all-time high of US$172-billion in March 2011. With the weak U.S. dollar and continued growth overseas, exports should remain strong over the medium term and cement America’s position as the top exporter of goods and services globally.
4. State finances are improving
The weak housing market continues to put pressure on state finances, but the worst is over for many as better-than-expected retail sales and other receipts are helping to establish a floor for their financial position.
5. The Fed isn’t changing its stance
The Fed’s second round of quantitative easing is due to conclude at the end of June, but the central bank’s benign monetary stance will be maintained well into the second half of 2011. The Fed is expected to err on the side of too-easy money rather than premature tightening, unlike the European Central Bank.
6. China will engineer a soft landing
With some US$3-trillion in reserves, the Chinese government has the wherewithal to keep growth in the 7% to 8% range in the near term. Despite challenges such as rising wages and higher food and energy costs, China’s economy may slow, but it will still grow faster than most countries again this year. It managed to post more than 9% GDP growth in 2009 as the global economy slumped.
7. Economic weakness provides relief for food and energy prices
The soft patch for global economies will help contain inflation risks and improve consumer sentiment around the world.
8. The euro crisis will be contained
The euro zone’s wealthiest member, Germany, will provide both the political will and capital to prevent Greece, Portugal or Ireland from imploding.
9. The U.S. debt ceiling will be raised
The debt ceiling has been increased more than 100 times in the past. Once this happens again, the focus will shift to tackling the U.S. federal budget deficit.
10. Everyone is not broke
Nor are they in the midst of austerity campaigns. In fact, the IMF estimates that developing nations have somewhere around US$7.5-trillion in international reserves. The deployment of these excess savings will come faster as a result of slow growth in the United States and Europe, helping the global economy maintain a growth rate of 3.5% to 4% in the near term.
http://business.financialpost.com/2011/06/16/10-reasons-not-to-panic/