What
is the worst possible news for investors to hear right now? Russia? The Middle
East? On the contrary, the worst possible news is an indication of a potential
U.S. recession. And this is exactly what one of North America’s noted
forecasters is speculating. “I’m saying it’s possible,” Gary Shilling, the Wall
Street analyst known for his often-contrarian predictions, many of which have
been proven correct, told the Financial
Post. “These numbers are kind of in the lap of the gods, to a certain
extent.” The U.S. is set to report the gross-domestic product data on
Wednesday. Many analysts are desperately hoping for a rebound after witnessing
a sluggish 2.9% contraction due to harsh weather in Quarter 1. Needless to say,
whether it is growth or a contraction, any changes in this week’s U.S. data
will certainly affect Canada.
Mr.
Shilling advocates investors to be cautious when dealing with the forecast.
“Those who are looking for 3%-plus real GDP growth in the second quarter, they
either see something I don’t see, or they’re going to be sadly disappointed,” said
Shilling. We are already in the second half. The determining factor is the
numbers. The last 3 years have consistently shown the Fed and most forecasters have
started off with 4% real GDP forecasts and ended up at 2%. This is where were
are: – 2%. On Wednesday, a low number can be detrimental for those looking for an
economic revival.
Canada
is one day behind in terms of reporting. We will know the GDP for May on
Thursday via Statistics Canada. The economists’ consensus is between 0.3% and
0.5%, after edging up 0.1% in April. This was the same increase as seen in
March, which brought the first quarter reading to 1.2%. The Bank of Canada is
predicting 2.2% growth for 2014.
The
Fed statement will be followed by the U.S. employment report for July. Mr.
Shilling remains quite dubious of job growth as well. He is one of the few
analysts who previously predicted U.S. recessions over periods of severe
inflation. In June, U.S. payrolls jumped by 288,000. That contributed to
pushing down the unemployment rate to a six-year low of 6.1%. “What we’ve had
here is, yeah, 200,000. Nice number. But if you look within that, it’s
surprising weak,” Mr. Shilling said. “The number is really hiding the quality,”
he said. “Well part-time jobs paid less than full-time jobs. And, also, most of
the jobs that have been created in this recovery so far have been in things
like leisure and hospitality, and retailing, which pay a lot less than
manufacturing and utilities.”
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