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Warren Buffett, currently the third wealthiest person in the world, has ruled out a double-dip recession in the United States and said businesses owned by his Berkshire Hathaway were actually growing, as reported by Bloomberg News.
“I am a huge bull on this country,” Mr. Buffett, Berkshire’s chief executive officer, said Monday in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”
The U.S. economy is expected to see its slow down to 2.5% next year from a projected 2.7% gain this year, according to the median forecast of economists surveyed by Bloomberg News, due mostly to stubbornly high unemployment (close to 10%) that is expected to stunt the economy’s growth because consumers are likely to keep a tight grip on their purse strings. Consumer spending typically fuels about 70% of the U.S.’s economic output.
But the stock market seems to agree with Buffett and the S&P 500 is close to breaking out of a recent trading range if it can sustain its upside momentum.
Mr. Buffett’s is known for his savvy in finding undervalued companies and stocks and his predictions have paid off for investors in the past. In the depths of the recession, for instance, he wrote an opinion piece in the New York Times on October 2008, urging investors to buy American stocks, a bet that turned out to be a winning one as equities eventually climbed higher from their dismal lows.
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” he wrote in the Times. “And most certainly, fear is now widespread, gripping even seasoned investors.”
More jobs than expected in August
The Canadian economy added more jobs than expected in August, although overall the unemployment rate went up by 0.1 percentage points to 8.1 per cent, due to more people entering the labour force, as reported by Statistics Canada.
A total of 35,800 new jobs were created in August after a loss of 9,300 posts in July, attributed mostly to a decline of 65,000 education jobs just as the school year ended.
The number of full-time jobs rose by 79,900, while part-time employment declined by 44,100. The biggest gains were in Quebec, Saskatchewan, Newfoundland and Labrador.
“Employment in educational services increased by 68,000 in August, rebounding from a decline of a similar magnitude the previous month. Similar offsetting movements in employment have occurred in this sector in recent summers. With this gain in August, employment in this industry is back to levels observed during the first six months of the year”, the agency said.
There was also job growth in professional, scientific and technical services, as well as the natural resources sector. Those gains, however, were dampened by losses in manufacturing, information, culture, recreation, building and other support services.
The summer also proved challenging for students seeking temporary work, with an average unemployment rate of 16.8% among 15 to 24 year-olds during the May to August period. That’s down from 19.2% last summer, but higher than pre-crisis levels of 13.6% in the summer of 2008, pointed out Statistics Canada.
About 396,300 jobs have been created since August 2009, with monthly job gains averaging 13,000 in July and August, far from the average monthly increases of 51,000 during the first six months of 2010.
The economic recovery in Canada has slowed down after an initially strong rebound from the recession. Gross domestic product expanded by an annualized two per cent in the second quarter of this year, falling short of the Bank of Canada’s forecast of three per cent.
Read more:
http://www.edmontonjournal.com
Tough Call
With the world economy stuck in between a recession that’s over and a sustained recovery that has yet to arrive, Mark Carney has some hard choices to make this fall.
There is near unanimity that the Bank of Canada Governor will lift the benchmark interest rate tomorrow for a third consecutive time, to 1 per cent. There’s also a growing consensus that the bank will then pause at its Oct. 19 decision while Mr. Carney spends more time assessing the durability of the rebound. But the market is already looking – with great uncertainty – at what comes after that.
The question is how long that pause will be, and if last week’s economic data are any guide, it is nearly impossible to answer with confidence. Some of the numbers have given Mr. Carney – the only Group of Seven central banker to raise rates this year – plenty of reasons to hold his fire tomorrow. Others seemed to give him a green light to keep raising rates.
A report last Tuesday from Statistics Canada showed the economy slowed sharply in the second quarter, with exports losing momentum as a result of sluggish overseas demand as companies, households and governments repair their balance sheets and spend cautiously. Meanwhile, inflation in Canada is tame, and the main drivers of growth – housing, government stimulus and consumer purchases – are giving the economy less of a boost.
On Friday, though, the picture in the vital U.S. market seemed a shade less fragile. American companies hired more workers than anticipated in August, data from the Labour Department showed, sending stocks higher and leaving analysts to hurriedly push aside any talk of a “double-dip” recession.
The case for Mr. Carney to plow ahead with another step away from emergency-low rates was already decent. A Canadian slowdown was always expected, even if the second quarter’s 2-per-cent annual growth rate was worse than the most pessimistic estimates. Business investment picked up, meaning the private sector – which has helped the economy recoup most of the jobs lost during the slump – is starting to fill the void left by the fading impact of stimulus and the cooling real estate market.
The bank’s main rate is still a long way from the 3.5 to 4 per cent that most consider “neutral.” And unlike the U.S., much of Europe and Japan, low interest rates and healthy banks have worked to re-ignite spending – so much so that many Canadians’ debt loads have risen even as de-leveraging takes hold in the rest of the developed world.
“The risk of keeping rates too low for too long is probably a little more pressing in Canada,” said Michael Gregory, a senior economist with BMO Nesbitt Burns. “You’ve got jobs, you’ve got a healthy banking system, and you’ve got consumers that do still have some capacity to take on more debt. That’s why Canada has to be a little bit more careful, a little bit more pre-emptive, in dealing with interest rates than the other central banks.”
Read more:
http://www.theglobeandmail.com
The Economy that lies ahead
By Benjamin Tal
CIBC WORLD MARKETS
The probability of a double dip in the US appears to be the main focus these days. And you cannot blame the market for getting a bit nervous given the latest array of disappointing numbers coming from the US economy.
But the real story is not whether there will be a double dip or not. After all, even if we avoid a double-dip recession, economic growth in the US will, in all likelihood, be so slow that it will feel like a double dip.
The more important question is what kind of an economy is emerging following the recession and the brief recovery? In this context many talk about a new normal. That is, a new economy that will see a much weaker growth trajectory in the coming five years or so, a weaker consumer due to deleveraging, a much larger role played by the government, low interest rates, and low inflation.
But this kind of assessment assumes that the US economy does not adjust to the new reality in any significant way. This assumption, I think, will be proven wrong. Key here is the role that emerging markets will be playing in changing the nature of the US economy.
A necessary condition to any previous US and, in fact, global recovery was a rebound in housing and consumer spending. These two sectors were always the pioneers of the recovery. Today this, of course, is not the case. The housing market is probably entering double-dip territory, and the consumer is busy deleveraging and saving, with the saving rates reaching well over 6%.
What’s different this time around is the fact that housing and consumer spending are not the only necessary and sufficient conditions for a sustainable US recovery. Just look at the contribution of exports and investment to recent US performance and you find that for the first time on record, the contribution of these two sectors to overall GDP growth during a recovery was larger than the combined contribution of housing and consumption.
Is this sustainable? The shorts answer is yes. While in previous recessions and recoveries, emerging markets were too small to impact the US economy; that is not the case this time around. Emerging markets now account for almost 25% of global GDP and are close to 80% of the size of the US economy. That’s large enough to impact the trajectory of US exports. In fact, no less than 55% of US exports go to emerging markets, and with emerging markets likely to continue to outpace developed economies, this share will continue to rise.
Increased exports lead to increased investment by corporations. And the question is to what extent corporate America is ready to take advantage of the increased demand for its products. And if you look at the recent improvement in productivity in US manufacturing, the increased investment in capital intensive industries and the elevated cash position enjoyed by corporate America, the likelihood is that we will see an even stronger push into emerging markets given limited opportunities at home.
Given this dynamic, it is not unthinkable that the new economy will see a much smaller share of housing and consumption and a much larger share of exports and investment. So maybe we should be talking about a new growth mix as opposed to a new normal.