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How the iPhone distorts trade The fat trade gap between the United States and China is one of the thorniest issues going. But, as two researchers note, sometimes there's more than meets the eye. Or, in this case, the 'i.'
Yuqing Xing and Neal Detert outline in a working paper for the Asian Development Bank Institute in Tokyo how production of the iPhone alone added $1.9-billion (U.S.) to America's trade deficit last year.
Even high-tech products invented in the United States, in this case by Apple Inc., won't boost U.S. exports, they write, but instead pump up the trade shortfall, in this case with the People's Republic of China.
"Most attention to date has been focused on macro factors, such as low savings in the U.S., insufficient domestic consumption in the PRC, and the PRC's exchange rate regime," the researchers say.
"A sharp appreciation of the PRC yuan, it has been argued, is an effective means of minigating the Sino-U.S. bilateral trade imbalance. Little attention, however, has been paid to the structural factors of economies and global production networks that have transformed conventional trade patters and the way we look at trade statistics, particularly in calculating the value-added component of traded goods and differentiating between processed and ordinary exports."
Here's how the U.S., where the wildly popular iPhone was invented, becomes an importer: Parts are made around the world, but the smart phone is assembled in China. China imports the parts and ships out the final product, and, the researchers note, the imported components "greatly inflate" the export value, with Chinese workers adding little to the "value added" piece of the puzzle.
Both countries record shipments as Chinese exports. So every time an American buys an iPhone, he or she is actually adding to their trade gap with China.
Through various calculations and looking at who supplied parts, including U.S. companies, the researchers find that iPhones accounted for $1.9-billion of last year's deficit, or about 0.8 per cent of the total shortfall with China.
Real estate market finds trough It looks like it's safe to say Canada's housing market found its bottom and is now stable, though economists warn of sluggishness.
Existing-home sales increased in November by 4.8 per cent from October, and new listings dipped 0.7 per cent, according to the Canadian Real Estate Association today. Notable there is that November marked the fourth straight month of increases.
Senior economist Pascal Gauthier of Toronto-Dominion Bank pointed out that sales have climbed 20 per cent since the trough in July, led by British Columbia, Ontario and Saskatchewan.
"As of these November figures, sales were roughly halfway between their peak of December 2009 and their trough of July 2010," Mr. Gauthier said.
Unlike the real estate market in the United States, the home of the meltdown, Canada's housing sector notched up a remarkable bounce back from the recession, and it appears, a soft landing.
"With the November figures in and assuming steady sales in December, [the fourth quarter]would mark a 14-per-cent increase in sales," Mr. Gauthier said.
"As such, and not coincidentally, it appears that [the third quarter]was not only the low-water mark in economic growth, but also in resale housing activity," he added in a research note.
"We expect home sales to remain well supported over the next couple of quarters before increases in borrowing rates eventually begin to ease the pace of sales. Reading through the quarterly volatility, we expect the market to move mostly sideways over the next couple of years. "The bottom line is that before long, eroding affordability and resale housing sector sluggishness will slightly dampen economic growth."
Sales across the country are still more than 9 per cent below levels of a year ago, though that's nowhere near the 30-per-cent plunge in July's trough. And, said BMO Nesbitt Burns economist Robert Kavcic, while major cities are still showing sizeable year-over-year declines, some smaller areas are showing good growth.
"After a dramatic ride that saw a recession, a piping hot rebound and a subsequent mini-correction, the Canadian housing market seems to have landed softly on stable ground," Mr. Kavcic said.
"The market now appears well balanced, with neither buyers nor sellers holding a meaningful edge."
Europe's crisis mounts The news ticker: Spain threatened with credit downgrade, protesters clash again with policy in Athens, Britain's jobless rate climbs to 7.9 per cent, with 2.5 million people now out of work, leaders divided over measures. All in all, a typical day in Europe.
Europe's debt crisis rattled markets today as Moody's Investors Service warned it could cut Spain's credit rating. So far, the smaller countries of the euro zone, such as Greece and Ireland, have been hit and forced to seek bailouts.
But there have been mounting concerns of the crisis spreading to the larger economies, and the Moody's warning today drives home that point.
"Moody's figures that Spain will have to raise €170-billion in 2011 plus €30-billion more for regional governments plus €25-billion more for its banks in the base case scenario," said Scotia Capital economists Derek Holt and Gorica Djeric.
"... Moody's stress scenario could require up to €90-billion to float the banks. The timing couldn't have been worse, however, on the eve of tomorrow's scheduled Spanish bond auctions for 2020 and 2025 bonds. We continue to expect a volatile risk-on, risk-off environment through 2011 owing substantially to Europe's funding challenges."
This all comes in advance of an EU summit tomorrow and Friday in Brussels.
U.S. inflation tame Consumer prices in the United States inched up by just 0.1 per cent in November, putting the annual inflation rate at 1.1 per cent.
So-called core prices, which strip out volatile items, also edged up by 0.1 per cent for the first rise in four months.
The annual core rate came in at 0.8 per cent, compared to 0.6 per cent in October.
What do today's numbers mean for the Federal Reserve, which has been on guard against deflation and recently launched a $600-billion (U.S.) program to buy Treasuries, hoping to spur the economy and lift consumer prices?
"Ignore the upturn in the yearly core rate and focus on the mild trend in the past four months, up just 0.4 per cent annualized," said BMO Nesbitt Burns senior economist Sal Guatieri.
"Christmas came early for shoppers, with many retailers slashing prices to spur demand. The Fed will likely continue to buy Treasury notes until it is reasonably confident that inflation is moving towards 2 per cent; and, outside of the temporary pop in the yearly core rate, the CPI report suggests that progress on this front remains 'disappointingly slow.'"
Disinflation is broadening, noted Jay Feldman, director of economics at Credit Suisse Securities in New York.
Rents had been the the primary driver of downward pressure earlier this year, he said, which had led to some skepticism related to the slowing nature of core inflation. But now rents appear to be stabilizing, while "everything else" is on a downward curve.
"The real story is that goods prices are deflating, he said. "Core CPI goods are down three-consecutive months, and the year-over-year has moved into negative territory for the first time since early '09."
Carney's cookie jar As one economist puts it, Mark Carney's warning on consumer debt is akin to leaving the cookie jar in plain sight but telling you not to touch.
The best way to put it is that policy makers are now between a rock and a hard place. The Bank of Canada's goal is to keep inflation around the 2-per-cent mark, thus leading to a solid economy. Very simply put, it lowers its benchmark interest rate to help juice the economy, and raises it to cool things down. Its mandate doesn't speak to consumers who are getting in over their heads and who could easily run into trouble when interest rates rise.
The financial crisis and recession brought emergency measures, and an ultralow policy rate that climbed slightly in the early stages of the recovery and now sits at a still low 1 per cent. Given global developments, notably in Europe and the United States, and the uncertainty in the economic outlook, the Bank of Canada governor is not expected to raise rates again any time soon. There's also the issue of not getting too far ahead of the Federal Reserve, whose benchmark rate is near zero and is expected to be held at that level for a very long time.
These low rates have helped boost the economy, which was, of course, Mr. Carney's goal. But they also helped fuel the swollen household debts at the heart of his repeated warnings. Mr. Carney has said for months that consumers and lenders must be careful and prepare for the inevitable rise in interest rates. In a speech this week, he issued his harshest warning yet as a key measure of household debt reached a record, illustrating his point. The central bank is also examining whether monetary policy has a role to play.
David Rosenberg, the chief economist at Gluskin Sheff + Associates, noted that Mr. Carney is warning at the same time that, given the slack in the economy and a strong dollar, there's no need for rate hikes for some time.
"But this is like mom leaving the pantry open and telling us to go easy on the oatmeal cookies," he said. "In the final analysis, it will be up to the banks and the borrowers to decide what the appropriate credit activity is and what is not. The banks have to assess the risk, and the household has to assess the limits of their tolerance for debt and debt-service."
While not part of Mr. Carney's pure mandate, Scotia Capital currency strategist Sacha Tihanyi noted that the Bank of Canada chief is part of the group of Ottawa policy makers with a common interest of assuring financial market stability.
- Canadians' borrowing in 'uncharted territory': Carney
- Canadians' debt-to-income ratio now higher than Americans'
Agrium strikes deal with Cargill Agrium Inc. has struck a deal to sell the bulk of the commodity management business it acquired in the takeover of Australia's AWB Ltd. to Cargill Inc.
There's no value on the deal announced today - Agirum said that would be based on the net asset value of what's included when the deal closes. But based on the value as of Sept. 30, together with the release of certain working capital, the western agricultural products company said, it would be worth about $870-million in Australian currency, which is at par with the U.S. dollar.
"We are continuing to evaluate the disposition of certain other businesses that form part of the commodity management business that is not being acquired by Cargill," the company added in a statement.
"We estimate the value of these additional businesses to be approximately $55-million (Australian) which, combined with the estimated net proceeds from the sale of the acquired businesses to Cargill and the release of working capital from Harvest Finance, represents a total estimated value of $925-million for the commodity management businesses that we have agreed to, or intend to, divest."
Manufacturing sales rise Canadian manufacturers notched up sales gains of 1.7 per cent in October, largely on shipments of energy products, metals and autos.
That's better than expected, and a gain of 9 per cent from a year ago, though sales are still far shy of their pre-recession peak.
"Manufacturing sales have been trending upwards at a slower rate in recent months after increasing substantially between May 2009 and May 2010," Statistics Canada said today.
Noted Toronto-Dominion Bank economist Sonya Gulati: "After being particularly hard hit by the recession, the current trend in the manufacturing sector suggests that unlike the speedy recovery we saw at the beginning of the recession, the remaining losses will be recouped at a more tepid pace."
- Manufacturing sales climb 1.7 per cent
- No boom on the horizon for Canada
- Canada growing more vulnerable to shocks
Boyd Erman's Morning Meeting Onex Corp. holding Emergency Medical Services Corp. has hired bankers and put itself up for sale after an approach from private equity firms, Streetwise columnist Boyd Erman reports today.
EMS announced yesterday that it was looking at options, and the New York Times Dealbook reported that EMS hired Goldman Sachs to review its alternatives after being approached by KKR and Bain Capital.
In Personal Finance today
Strong legal documents can protect vulnerable seniors from scams and abuse.
Put one of these unique offerings under someone's tree this year.
The next time you eat out, watch for these common restaurant tricks that undermine your dining budget.
In Your Business today
Search fund Auxo Management was started this year by Canadians Rob Cherun and Erik Mikkelsen. With experience in fields such as management consulting and investment banking under their belts, they recognized a gap in the small-business funding market and came back from the United States with plans to actively manage an acquisition.
If your New Year's resolutions for 2011 include being more assertive, standing up for yourself, and achieving your goals, the "no" system can be your ticket to success.
Small business owners need to ask themselves: Is the customer experience you're providing actually sabotaging business? For example, can your customers see your product? Can they touch it, feel it or try it on or use it before they buy it?
In Technology today
Time magazine has placed Facebook founder Mark Zuckerberg on its cover as Person of the Year because Facebook "changes the way human beings relate to one another"
From today's Report on Business