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Economy Hits Speed Bump Not Roadblock

Research & Strategy October 05, 2021
Research & Strategy October 05, 2021

North American Outlook

United States
  • Although supply shortages and the Delta wave have slowed activity, they are likely only delaying the U.S. recovery, and we continue to expect robust growth in the year ahead. The latest wave of infections, lack of product selection, higher prices, and fading support from rebate payments have clearly cooled consumers. Rising anxiety led to a pullback in travel and dining. At the same time, product shortages and output disruptions, in part due to an outbreak of infections in Asia, have held back supply. Nowhere is this one-two punch more apparent than in the auto industry, where the major producers have been forced to idle output due to a shortage of microchips (that now risks extending into next year) and with buyers forced to scrounge dealer lots for a limited selection. Despite a nice rebound in August, consumer spending likely downshifted to a 1% annualized rate in Q3. This led us to trim our GDP growth call to 4.5% annualized in the third quarter. But remember, the second quarter witnessed 12% annualized gains in both consumer spending and business equipment spending, and a 6.7% pop in GDP.

Canada
  • After contracting moderately in the second quarter amid new restrictions and supply-related disruptions to auto exports, Canadian real GDP is expected to rebound 3.5% annualized in the third quarter amid support from expansionary fiscal policy, high household savings, and rising energy prices. Though slipping again in July, Statistics Canada expects a hearty 0.7% bounce in August GDP. Western Canada, and Alberta in particular, has struggled with the Delta variant, but Central Canada was less impacted. The auto industry continues to face supply shortages, with light vehicle sales down 20% in the past year to September, but other expenditures, such as on home furnishings and clothing, have picked up the slack. Business investment is also on an upswing. While small business confidence plunged in September, this was largely due to uncertainty about the federal election and vaccine passports, suggesting a rebound is likely. The country is now consistently recording merchandise trade surpluses for the first time in several years. We continue to expect stronger 6.0% GDP growth in the fourth quarter and 4.5% in 2022, well above long-run potential of under 2%.

FULL REPORT

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Sal Guatieri Director and Senior Economist

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