Econowatch: A scorecard on the state of the economy

Apple surpasses Coca-Cola as the most valuable brand

In 2007, Apple launched its first iPhone. This week, it surpassed Coca-Cola as the world’s most valuable brand. In that same period, rival BlackBerry has gone from world beating tech firm to just plain beaten.

The sheer speed and scope of BlackBerry’s collapse has a Nortel-like feel to it, and offers a sad reminder of just how few companies of BlackBerry’s calibre exist in Canada. In Interbrand’s list of the top 100 brands, which Apple now tops, the only Canadian firm is Thomson Reuters, at number 47 (better known for its U.K.-based Reuters arm). Nowadays, Canada’s most successful (i.e. profitable) companies are banks, which thrive mostly because they are protected from outside competition, not because they’re particularly competitive. You can count on one hand the number of truly innovative Canadian companies—the kinds that are creating new markets, new products and fuelling R & D. Bombardier is one. Magna International another. That’s about it.

This is a dangerous trend. It’s companies like BlackBerry that ultimately create jobs and lift the economy. Hundreds of tech firms and thousands of jobs now exist in the region of Waterloo, Ont., because of it—whether or not they’ll survive in the absence of BlackBerry is a subject of debate. As of August, unemployment in Kitchener-Waterloo was at eight per cent, up from 6.6 per cent a year ago.

But the problem in recent years runs even deeper than a dearth of innovative, globally competitive firms. As Bank of Canada governor Stephen Poloz noted in a recent speech, for every new company that was created between 2008 and 2012, another one failed— and if the number of companies isn’t growing, neither are exports or the economy as a whole. Poloz was, however, optimistic that Canada is “turning the corner,” with new companies suddenly being created at a stronger pace than expected. In September, there were 40,000 more companies than at the same time last year. These new firms are the “natural engine for growth,” said Poloz, creating new products, ideas and an “outsized proportion” of jobs.

Here’s hoping one or two of those companies are Apples, or even BlackBerrys, in the making.

The good news

  • The U.S. economy is back on track: GDP grew at an annualized rate of 2.5 per cent in the second quarter, up from 1.1 per cent at the start of the year. In the same period, household net worth hit a record $74.8 trillion.
  • China opened a new free-trade zone in Shanghai last week. It could pave the way for wider financial reforms, and a more investor-friendly country.
  • The Canadian economy grew at its fastest rate in two years in July, up 0.6 per cent—raising the odds that third-quarter growth will crack two per cent.
  • In one of the surest signs of an economy on the mend, 51 per cent of Americans plan to make a big purchase, such as a TV or a car, this year, says an American Express survey. Among wealthier households, it’s 62 per cent.
  • Bombardier won high praise for its new C-Series jet from the CEO of Indonesia’s Lion Air, who called it a “big quantum leap” for the company. Can a big purchase be far behind?
  • ‘Go West’ is good advice if you’re a Canadian. Saskatoon, Regina, Edmonton, Calgary and Vancouver will lead all other Canadian cities in economic growth in 2013, says the Conference Board of Canada.
  • Britain’s $5.3-billion IPO for the Royal Mail was reportedly sold out within hours last week. Time to rethink privatizing the money-losing Canada Post?
The bad news

  • Lawmakers in the U.S. were doing their best this week to undermine the recovery, forcing a government shutdown, which could cost the country as much as $300 million a day in lost output.
  • The kids aren’t all right: A new U.S. study says that, on average, workers are now 30 years old before they make the median income of $42,000, up from 26 in 1980.
  • Ottawa’s budget deficit widened to $4.5 billion for the April-to-July period this year. The Finance Department, undaunted, says the fiscal outlook is “on track.”
  • U.S. home sales have been so strong—up 18.4 per cent in the 16-month period ending in July—that they’ve sparked concerns of yet another housing bubble in the making.
  • Nine Japanese auto-parts firms pleaded guilty in the U.S. last week to price fixing, and will face more than $740 million in fines. None of it will go back into the pockets of the 25 million people who overpaid for their cars as a result.
  • The number of mergers and acquisitions in the oil sands is at a nine-year low. As investment fades, so does Canada’s dream of becoming an “energy superpower.”
  • Maersk may have made a Titanic mistake. It says shipping has been more sluggish than expected when it spent billions building the world’s biggest container ships two years ago.

Stock Signs: Go small or go home

  • The Russell 2000 index hit an all-time high last week. The index tracks the stocks of smaller U.S. companies with a market valuation of around $1 billion. Investors, it seems, are expecting big things from smaller firms.
  • New York Attorney General Eric Schneiderman is calling for a crackdown on high-frequency traders who pay to get key economic data a few minutes before everyone else. He called it “insider trading 2.0” because “these guys are moving the starting line halfway to the finish before their competitors even have their feet in the blocks.”
  • The market for IPOs appears to be heating up. Chrysler, Hilton Worldwide Holdings and Twitter all have offerings planned this fall. There are also rumours that King, the company behind the smartphone game Candy Crush Saga, is preparing for an IPO, suggesting tech firms are once again taking aim at the public markets.
  • Lockheed Martin has tripled the size of its share-buyback program and boosted its dividend. With Washington in the grips of another budget showdown, the defence giant is preparing its shareholders for a period of subpar growth.