May is now history, and with it another cross-Canada Let's Talk Exports tour. I thoroughly enjoyed meeting many of you in the past few weeks, and gauging your sense of Canadian exports. What I heard was that our upbeat message was good news, and you hoped that we are right. In those statements was a pervasive sense of caution, likely reflecting the world's three failed attempts at economic recovery. We're not alone -- the world has been excessively gloomy for five years.
More than most, Canadian exporters can be forgiven for feeling this way. When exports collapsed in 2009, many of them shifted sales inward, into what proved to be a surprisingly strong domestic economy. Now, with highly-indebted consumers reining in spending, housing activity well off peak levels and government austerity weighing further on growth, that internal market isn't offering much these days. A revival in trade would undoubtedly lift exporters' spirits. Is it likely?
Early signs are appearing, notably in US sales. However, most agree that they are too sporadic and volatile at this point to be reassuring. Even so, one late-breaking development is noteworthy.
Last week, the release of US consumer confidence data for May showed a breakthrough. Confidence broke above the recessionary band that has held Americans prisoner since early 2008. Normally, recession doesn't shackle US consumers the way the recent debacle did. They are well known for resisting gloom, for stubbornly refusing to let bad times get them down. This time around, they have been down so long that it was beginning to look doubtful that anything could lift their spirits.
Before getting too excited, it is critical to note that one month alone hardly heralds the end of the trend. Indeed, in the past 18 months, confidence seemed to break through the same barrier, only to be revised away in subsequent months. Yet it is significant that both the current and future expectations components registered large gains. Moreover, the Conference Board index is not the only one to track the same trend. Also in May, the oft-cited University of Michigan Index hit its highest level since September, 2007, and the daily Rasmussen Index is at its highest monthly level since October, 2007. These don't always agree with each other, so the co-movements are noteworthy.
This nascent improvement seems to corroborate other indications of improving confidence, noted in previous missives. To recap, bond rates and spreads are narrowing, even in OECD economies embroiled in structural difficulties. Second, bond markets appear less reactive during market panic points. Third, banks appear more willing to lend, most obviously in the US, but even in the EU market. Fourth, there is a growing sense that key part of the economy - again, first in the US - are returning to balance. Fifth, the first glimmers of a return of recovery-style economic momentum are appearing.
It's these budding growth sectors that are giving rise to some pretty impressive underlying growth stateside - strong enough that if sustained, has the power to lead the world into its next growth cycle. Imagine the extra boost this process would receive from an American consumer rising out of its unprecedented half-decade-long slough of despond. With their finances now in much better order and a job market that still has its best days ahead of it, the positive impact could come as a shock.
The bottom line? The world has become used to perpetual gloom, and those at the early end of their careers have known nothing but. Recent budding optimism stateside could be the very remedy for an increasingly tentative Canadian exporter. US sentiment is an indicator worth keeping a keen eye on.Suggest a correction