Mish's Global Economic Trend Analysis

Canadian Exports Collapse, Expect Plunge in GDP; China Factor; US Recession Factor

Posted: 11 Sep 2012 07:51 PM PDT

All major Canadian exports including energy, autos, agriculture, forest products and machinery-and-equipment collapsed in the latest report. Canadian analysts are shocked by the news.

I sure am not.

For my reason, look at happenings in China, a huge recession in Europe, and even a recession in the US that surprisingly few have even figured out yet.

The Globe and Mail reports Sharp trade slowdown set to wallop GDP

The high dollar and the global slowdown are crushing Canada's trade-dependent economy.

The latest evidence: The country posted the largest trade deficit in July since Statistics Canada began keeping records in 1971.

It wasn't just the scale of the gap – $2.3-billion – that jolted analysts. It's how the economy got there.

Virtually all major exports fell sharply, including energy, autos, agriculture, forest products and machinery-and-equipment. The overall drop was 3.4 per cent, paced by an even larger 5 per cent decline in exports to the U.S. – Canada's largest customer.

At $2.3-billion, the trade deficit narrowly eclipsed the old mark, set in September 2010.

Scotiabank's Mr. Holt said the high dollar is most damaging to U.S.-bound exports, which accounted for 72 per cent of all exports in July.

Currency Issue?

Sorry guys, this is not just a currency issue. This is a global recession, starting in Europe, continuing in Asia and as of June hitting the US. Few even see the US recession yet, but it is here, and Canada will be on the leading edge of it all.

China Factor

This is not unexpected in this corner, albeit I have for so long predicted the end of the Canadian housing bubble that no one is listening to anything else I have said about Canada.

Those who want to catch up on what is happening in China and how it is guaranteed to affect Canada may consider the following posts.

All three of those pieces originate from Michael Pettis at China Financial Markets. What he suggests about China and Australia, I have long-since stated applied to Canada as well.

Those posts are just the start of Canada's problems. Europe is in a massive recession that few saw coming. I commented on that silliness on January 9, 2012 in Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year"

Global Recession

Heck, even the vaunted German export machine is falling apart. See Germany in Recession: Private Sector Sees Fastest Falls in Output and New Business Since June 2009; New Export Orders Collapse

In the above post I commented ...

Global Recession Revisited

On July 6, 2012, I wrote Plunging New Orders Suggest Global Recession Has Arrived

Clearly I am not changing that prognosis although I do wish to reiterate the definition of "global recession as per my post Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness; Permabears?

US Recession Factor

On June 21, 2012, I gave 12 Reasons US Recession Has Arrived (Or Will Shortly)

On September 7, I stated a specific belief the US entered recession in June.

For my reasons, please review Household Survey: Number of Employed Declines by 119,000 as Those Not in Labor Force Rises by Spectacular 581,000; Yes, Virginia, It's a Recession

The three people I am aware of sticking with a recession call right now are John Hussman, Lakshman Achuthan at the ECRI, and me.

Indeed, John Hussman announced yesterday in Late-Stage, High-Risk "I continue to believe that the U.S. joined an unfolding global recession, most probably in June of this year."

In Hussman's post he states a belief backdated downward revisions are coming up. I concur with his analysis.

The collapse in the household survey is an indicator as is the collapse in Canadian exports to the US.

Canada Housing Bubble

100% without a doubt, Canada is in the midst of an immense housing bubble. The Canadian bubble outlasted bubbles in China and Australia. Because it did, I get taunts from Canadian readers all the time.

I received one just yesterday. It went something like this "So Mish, where's your Canada Housing Collapse?"

The answer, as always is "I don't know". That said, bubbles pop by definition. Moreover, the longer the bubble lasts, the bigger the implosion.

Australia is in the midst of a big property bubble collapse, a big retail collapse, and a big export mining collapse all at the same time.

Canada will follow suit at some point and given taunts out of the blue, now is as good a time as any.

Addendum:

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Petroleum And Gasoline Usage Charts for June, July, August; Unemployment vs. Gasoline Usage Analysis

Posted: 11 Sep 2012 09:57 AM PDT

Another summer is gone. How much gasoline was used vs. the same months in prior years? These charts from Tim Wallace have the answer.

Total Petroleum Usage

click on chart for sharper image

Gasoline Usage

click on chart for sharper image

General Comments

Gasoline usage is the same as it was in 2001 or 2002, depending on the month.
Petroleum usage is the same as it was in 1997 or 1998, depending on the month.
Gallons per mile did not suddenly improve in 2007. Thus declining gasoline usage cannot be attributed to improved gas mileage, cash for clunkers, etc.
There was a rebound in June and July of 2010 consistent with the economic recovery. For August alone there was rebound in 2010 and 2011.
Based on gasoline usage, the economy has stalled or there is some other force in play, not related to improved gas mileage.

Jobs, Demographics, Attitudes

Those who are unemployed do not drive many miles.
People back in school or hiding out in school hoping to get a job later do not drive many miles.
Those who want a job and need a job but instead retired to have money coming in from Social Security do not drive many miles.
Those on disability do not drive many miles.
The commercial real estate boom which lasted another year or two after housing died came crashing to earth in 2007. Construction and stocking of the final commercial real estate build-out took a lot of gasoline and diesel. That fact explains the last push higher in June and July of 2007.
Attitudes of millennials towards cars and transportation vs. their boomer parents have come into play.
Because of the economy, people are taking vacations closer to home, driving fewer miles to do so.

Gasoline usage mirrors the weak recovery in jobs. Forget about the falling unemployment rate because the rest of the Household Survey tells the real story.

Quick Notes About the Unemployment Rate

US Unemployment Rate -.2 to 8.1%
This month the number of people employed fell by 119,000.
In the last two months, the number of people employed fell by 314,000!
In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000.
This month the Civilian Labor Force fell by 368,000.
Last month, those "not" in the labor force increased by 348,000 to 88,340,000, another record high.
This month we set another record high with a whopping 581,000 dropping out of the labor force. If you are not in the labor force, you are not counted as unemployed.
In the last year, those "not" in the labor force rose by 2,723,000
Over the course of the last year, the number of people employed rose by 2,347,000.
Participation Rate fell .02 to 63.5%;
There are 8,031,000 workers who are working part-time but want full-time work, a decrease of 215,00. This one the only bright spot in the report.
Long-Term unemployment (27 weeks and over) was 5.033 million a decline of 152,000 (likely an artifact of the decline in the labor force).
Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

Unemployment vs. Gasoline Usage Analysis

In terms of gasoline usage, nearly all of the above points apply, especially two through nine, eleven, and twelve.

This recovery is far weaker than the decline in unemployment suggests. Gasoline usage is consistent with that thesis.

Addendum:

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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