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Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »

Ten Mid-May Economic Nuggets

May 13th, 2016 by Alex Carrick, Chief Economist at ConstructConnect

Article source: ConstructConnect

The U.S. and Canadian economies appear to have entered a ‘blah’ stretch. In April, U.S. total employment rose by 160,000 jobs, a tepid figure compared with the previous two months (i.e., +208,000 in March and +233,000 in February). The unemployment rate, though, stayed the same as in March, at a tight 5.0%.

The latest U.S. initial jobless claims figure shot up to 294,000 for the week ending May 7. Only four weeks prior, it had been as low as 248,000. The most recent 294,000 number does extend the streak of beating 300,000 for more than a year. If that’s ever been done before, it was way back in the early 1970s. But 294,000 is now cutting it close. It doesn’t permit much wiggle room. The foreheads of some economists are beginning to show worry lines.

Canada’s jobs pool shrank by 3,000 in April, although again the unemployment rate stayed on a par with the month before, at 7.1%. Total employment in Canada is presently +0.8% year over year, which is less than half the U.S. rate of increase, +1.9%. Specifically for the construction sector, on-site employment in the U.S., at +4.1% year over year, is significantly outpacing Canada’s +1.4%.

Against this backdrop, there are the following additional ‘nuggets’ to be gleaned from the latest government agency and private sector data releases. The ‘soil’ is rich and the ‘crop’ abundant.

(1) Where are the jobs of the future? With an aging population, on account of the post-World War II baby boom generation moving half-way and further down the hall of life, providing expanded and personalized health care is becoming more critical. Consider the following percentage changes. While the year-over-year increase in total employment in the U.S. economy in April was +1.8%, the jobs climb at hospitals was +4.0%; at assisted living facilities for the elderly, +4.1%; and in home health care, +6.1%.

(2) In Canada, some of the industry sub-sectors providing the best year-over-year jobs increases have been: hospitals, +2.3%; motor vehicle parts manufacturing, +2.5%; universities, +3.3%; ship and boat building, +7.4%; and the blue-ribbon award winner, ‘movies, videos and music producers’, +16.3%. So if you have sons and daughter beginning their career paths north of the border, you may want to pay for them to have their teeth capped. And encourage them to take singing and acting lessons.

(3) Much of the forward momentum in the U.S. economy during the recovery and expansion phases since the Great Recession has been provided by the nation’s uniquely large firms in the high-tech sector. No other nation is home to the same number of digital-era giants. Recently, the pecking order among several of those enterprises has undergone a radical shift or two.

(4) For many years, dating back to 2010, Apple Inc. was the biggest company in the world as measured by market capitalization. Its peak total value approached $800 billion in February 2015. In fact, there was an expectation the company would become the first in history to reach the staggering $1 trillion mark. But that dream has been stalled by iPhone sales that have plateaued. Furthermore, the share price of Alphabet Inc. – better known by the name of its subsidiary, Google − has come on like gangbusters. Apple and Alphabet, each currently valued at close to $500 billion, are now in a virtual tie for top spot.

(5) Alphabet hasn’t been the only ‘upstart’ company to rocket up the charts. Amazon has also had an amazing string of corporate successes and has now moved past Johnson & Johnson into seventh position among S&P 500 companies. According to USA Today, five of the seven largest publicly-traded companies in the S&P 500 index are knowledge-based firms. They are Alphabet (1); Apple (2); Microsoft (3); Facebook (6); and Amazon (7). Lengthening the list to encompass the Top 10 biggest companies, the others are; Exxon Mobil (4); Berkshire Hathaway (5); Johnson & Johnson (8); General Electric (9); and Wells Fargo (10).

(6) Let’s not leave the field of high-technology quite yet. What’s particularly worth noting is the manner in which there is an integration of interests that is beginning to bind together some of the newly crowned champions with old stand-by firms. A perfect illustration is Fiat Chrysler’s agreement to provide Alphabet/Google with 100 modified Pacifica minivans. They will be used to test the radar, laser and camera equipment being developed for autonomous vehicles. It will be to the benefit of both companies. Fiat Chrysler will gain a better understanding of how its assembly processes will need to be adjusted. Google will be able to study the results from many more miles of driving in real world conditions. Google executives have been emphatic in stating they have no intention of ever beginning to assemble cars from scratch.

(7) Most people, when asked to name the fast-food chain with the most outlets worldwide, would guess McDonald’s. Sorry, but that’s not correct. Subway Restaurants, with 44,000 locations, has that distinction, although there will soon be a net decrease of several hundred in the U.S. The legal difficulties of the company’s spokesperson, Jared Fogle, haven’t helped the company, but there are also fundamental ways in which consumer spending in America is no longer exhibiting the same old patterns. High-end retailer Nordstrom recently reported weak earnings. Sears is closing more stores. Even Walmart has had to suffer the embarrassment of some downsizing.

(8) With respect to annual venture capital investment in America, a recent report from PricewaterhouseCoopers places San Francisco far ahead of all other urban centers in 2015, at $21 billion. In its wake were four other cities with quite substantial dollar amounts, New York, San Jose, Boston and Los Angeles, all between $4 billion and $7.5 billion each. The next tier, however, was way lower, at less than $2 billion each, and it was comprised of Seattle, San Diego, Chicago, Washington, Atlanta, Austin, Denver, Philadelphia, Baltimore and Provo.

(9) The April Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM) clocked in at 50.8%, down by exactly one percentage point from March’s 51.8%. A value for the PMI above 43.2% indicates the overall economy is expanding, but it must be 50.0% or more to provide assurance that the manufacturing sector is on a growth path. In the last 12 months, the PMI has been 50.0% or higher on seven occasions. It has fallen below that yardstick five times. The manufacturing sector has been fluctuating between feeling okay and having a belly ache. History has shown that a PMI reading of 50.8% corresponds with an annualized ‘real’ (i.e., adjusted for inflation) gross domestic product (GDP) growth rate of +2.4%.

(10) Canada’s housing starts in April were 192,000 units seasonally adjusted and annualized (SAAR). While they were down 5.0% from March, the fact they remained so close to the benchmark 200,000-unit level made them still pretty good. Home groundbreakings on average through the first third of this year, north of the border, have been +11.5% compared with the same January through April time frame of last year. Provincially, B.C. has been setting the pace, with a year-to-date increase of 45%. Second and third positions are being held by Ontario (+19%) and Quebec (+17%). The worst record has been turned in by Alberta (-45%), with Newfoundland and Labrador (-37%) also in the doldrums. The economies of both those provinces are dependent on energy sectors that have been harshly treated by oil’s precipitous price plunge.

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