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US Economy Finishes 2019 Strong – DTN The Progressive Farmer

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The government’s estimate Friday that GDP grew at a 2.1% annual rate in the July-September quarter was unchanged from its previous estimate. Though the overall growth figure was unchanged, some of the individual components of GDP were revised.

Consumer spending for the quarter, for example, grew at a 3.2% annual pace, the government estimated, up from its previous estimate of 2.9% growth. The new strength was led by higher spending on personal services such as barber shops and nail salons. And housing, which had fallen for six straight quarters, posted a solid 4.6% increase in the third quarter.

On the other hand, the government revised down its estimate of business inventory restocking. Business investment was revised to show a slightly smaller 2.3% annual decline, still the second straight quarterly drop in that key category.

Economists are forecasting moderate growth in the current quarter and for at least the first three months of next year. But they say annual growth could be reduced by about one-half percentage point to 1.5% in the first quarter, reflecting Boeing’s temporary production shutdown of its troubled 737 Max jetliner, before regaining that lost output later.

Though 2% annual growth is below the gains of 3%-plus growth that Trump has pledged, it is far stronger than the recession many analysts feared just a few months ago, when concerns were escalating over the tensions in the U.S.-China trade dispute and weak growth overseas.

For all of 2019, the expectation is that GDP growth will come in at 2.3%, down from the 2.9% gain of 2018, which was the best since 2015. For next year, analysts generally think growth will slow further to 1.8% as the boost from the $1.5 trillion tax cut measure passed in 2017 fades further.

The economy may be getting some help from a preliminary trade deal announced last week that should at least cool tensions between the United States and China. That announcement, along with better economic data recently, has helped lift stock markets to new highs.

Three rate cuts by the Fed this year, partly reversing four rate increases last year, have helped fuel the rebound. And a budget agreement passed this week is expected to shower billions of dollars in increased spending on the military and domestic programs in the coming year, helping to support growth.

Yet even with those gains, analysts are forecasting that growth will slow further in 2020, hurt by continued overseas weakness.

Another headwind could be the 2020 presidential election. It is expected to raise business anxiety about the course of government policies, given the sharp differences between Trump and his Democratic challengers.

(KR)

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Canadian first quarter industry capacity use rises to 81.7%

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Canadian industries ran at 81.7% of capacity in the first quarter of 2021, up from a upwardly revised 79.7% in the fourth quarter of 2020, Statistic Canada said on Friday.

The increase in the first quarter was driven by gains in construction and in mining, quarrying, and oil and gas extraction.

Following are the rates in percent:

Q1 2021 Q4 2020 (rev) Q4 2020 (prev)

Cap. utilization 81.7 79.7 79.2

Manufacturing 76.5 76.7 76.2

NOTE: Economists surveyed by Reuters had forecast a first quarter rate of 80.6% capacity utilization.

(Reporting by Steve Scherer, editing by Dale Smith (steve.scherer@tr.com))

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UK, Canada agreed to redouble efforts for trade deal

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British Prime Minister Boris Johnson and Canadian Prime Minister Justin Trudeau agreed on Friday to redouble their efforts to secure a trade agreement as soon as possible to unlock such a deal’s “huge opportunities”.

“The leaders agreed a comprehensive Free Trade Agreement between the UK and Canada would unlock huge opportunities for both of our countries. They agreed to redouble their efforts to secure an FTA (free trade agreement) as soon as possible,” Downing Street spokesperson said in a statement.

“They discussed a number of foreign policy issues including China and Iran.”

 

(Reporting by Guy Faulconbridge, writing by Elizabeth Piper)

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Greater pricing power to help Canadian exporters withstand loonie surge

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A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.

Exports account for nearly one-third of Canada‘s gross domestic product, compared with about 12% for the United States, making Canada‘s economy more sensitive to a stronger currency, with the loonie trading near a six-year high versus the U.S. dollar.

But exporters could remain more competitive than usual after the COVID-19 pandemic led to a surge in the amount of money available for consumer spending, bolstered by government support measures. A global shortage of goods, due to supply chain disruptions, could also help.

“The appreciation that we are seeing in the currency now is less of an issue than in most other appreciations that we have seen,” said Peter Hall, chief economist at Export Development Canada.

“There are not enough goods and services available to satisfy the demands of the marketplace at the moment. And in that case there is probably pricing power,” Hall added.

The prices that Canadian manufacturers charge for their products increased at a record pace in May, while activity climbed for the 11th straight month, data from IHS Markit Canada showed last week.

Canada‘s major exports include autos, oil and other commodities. With commodity prices soaring, the Canadian dollar has been the top performing Group of 10 currency this year, advancing 5% against the U.S. dollar.

It hit a six-year high near 1.20 per greenback, or 83.33 cents U.S., last week. The Bank of Canada has said that further appreciation could weigh on the economy.

The loonie traded close to parity for much of the 2007 to 2013 period, contributing to a slow recovery for Canada‘s exports from the global financial crisis.

“What (business) was left behind after that period of an overvalued currency was relatively strong,” said Doug Porter, chief economist at BMO Capital Markets.

That reduces the risk of a “hollowing out” of the sector during the current episode of currency strength, Porter said.

At Magna International Inc, a major Canadian producer of auto parts, global diversification of its operations helps protect against currency strength.

“Movements in the Canadian dollar have become relatively less impactful to our overall business,” a company spokesperson said in an email to Reuters. “Increased global economic activity, and in particular global light vehicle production is a more important factor to our outlook.”

For now, the greater concern for manufacturers could be the reduced and more costly supply of inputs, such as semiconductor microchips, as well as the lengthy closure of the U.S. border.

“The challenge we have faced as an industry is the movement of personnel,” said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers’ Association (CVMA). “If a piece of equipment on the line goes down, you may need to bring in someone from Michigan.”

For some industries, those logistical issues and the stronger Canadian dollar could be trivial compared to the jump in commodity prices.

“Under normal circumstances, a rising Canadian dollar would hinder the competitiveness of Canadian exports, but the way ag (agriculture) markets have risen overall, it’s a moot point,” said Lorne Boundy, merchandiser for Winnipeg-based crop handler Paterson Grain.

 

(Reporting by Fergal Smith; additional reporting by Allison Lampert in Montreal, Rod Nickel in Winnipeg and Shreyasee Raj in Bengaluru; Editing by Denny Thomas and Jonathan Oatis and Kirsten Donovan)

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