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(May 22, 2008) If you thought things were turning around for the American economy, think again. A new TD Economics report says many of the tests to predict a recovery are so far coming up negative or inconclusive.

Beata Caranci, director of economic forecasting for the bank, was surprised that the manufacturing Institute of Supply Management index — a leading indicator of whether or not a recession is underway — reveals that a turnaround has yet to begin. The ISM says an index of 41.1 over a period of time usually signals an expansion of the overall economy. So far, the ISM Index hasn’t hit that target.

Caranci points out that this doesn’t necessarily mean anything because it usually takes one month after a recession has ended to reach that mark.

The new orders index subcomponent is also worth looking at when determining whether or not the U.S. economy is recovering. Caranci says every time the sub-index is at 46, and climbing, it means the economy is in the first or second month of recovery. The sub-index is currently at 46.5, but it’s not as good a sign as it looks. “It has stalled at that level for two consecutive months, and the direction has been towards deterioration, not improvement, suggesting it may not yet have hit bottom and more weakness could be in the offing,” Caranci explains.

Another economic predictor is financial data such as the S&P 500 and yield spreads. Caranci found that both indicators were saying that a recovery could begin within the next six months. But that happening doesn’t mean the U.S. will return to its former glory.

“A signal of an economic recovery does not imply a quick return to economic strength,” says Caranci. “Rather, it merely implies a trough in growth. Beyond this point, the recovery can certainly be a gradual, sluggish process, as we expect will be the case in the current cycle.”

She adds that the credit crunch complicates things, as there is a chance that financial market indicators will be more prone to false signals than in similar situations in the past.

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Scotia’s Commodity Price Index climbs higher again

(May 22, 2008) While the stock market might be having ups and downs, the Scotiabank Commodity Price Index is only going up.

For four consecutive months, the index, which measures price trends in 32 of Canada’s major exports, has been posting record highs. In April the All Items Index jumped by 5.7% over March and has now advanced 197.2% above the cyclical low in October 2001.

This month, the index comes with a special report on oil and gas. Patricia Mohr, vice-president and economics and commodity market specialist at Scotiabank, says she is revising the bank’s WTI oil price forecast to $125 for this year, with prices hitting $140 in the latter half of 2008 and $135 to $140 in 2009. “Sustained high prices are expected over the balance of the decade,” she adds.

The report points out that oil consumption growth in China, “other Asia” and the Middle East is at an estimated 950,000 barrels per day. This will account for the bulk of world demand growth in 2008, with G7 consumption declining by roughly 420,000 barrels per day.

The Metal and Mineral sub-index was the big winner in April, jumping 12.1% month over month. The big increase was due to gains made in coking coal and potash at the Port of Vancouver.

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RBC expands global financial services

(May 22, 2008) In our global economy, Canadian-based clients are making financial transactions around the world. With that in mind, RBC has announced that it’s integrating its global financial services throughout Europe and Asia.

“For some time, Canada’s biggest corporations have had access to the global treasury management solutions they need,” says Jana Henderson, director of RBC Global Solutions. “Now RBC is ensuring that Canadian-based small and commercial businesses can access the same scope and level of service in Europe and Asia/Pacific — and via the same RBC relationship team they know and who knows their business and their industry.”

RBC’s small business and commercial clients conduct business in more than 100 countries, with most of that activity, 84%, taking place in the U.S. But 15% of clients now do business in Europe, while 9% deal with China.

The bank found that of the 10% of clients who plan to enter the international sphere within the next two years, 20% are looking at China, while one in seven plans to do business in Europe or Asia/Pacific.

RBC also revealed that of the four Canadian industries most active around the world, manufacturing leads the way, accounting for 28% of total business. Wholesale comes in second with 13%; consumer services has a 10% market share; and knowledge-based industries make up 8%.

(05/22/08)