Earnings season(part2)

When I was studying business cycles at the University of Ottawa my mentor was O.J. Firestone;he was a former deputy minister of Industry,Trade and Commerce.He stressed the importance of good data.However today it is hard to get good data.For example,the Bank of Canada gives forecasts of economic growth and constantly revises them.I have seen forecasts of 2%and 2.4% and now annual growth may come in closer to 3% for 2013.Forecasts are again at 2.4% for 2014.However I suspect that final growth figures may end up at closer to 2%.This is what happens in a "u" shaped cycle.The economic growth starts to gradually reduce as the effect of the dampening takes hold.
  Dampened growth
Dampened growth occurs for two reasons;first the excess government spending does raise demand and prevents economic growth from becoming dramatically negative.The curve is rounded or softened.However on the other hand  large government taxes reduce disposable income so the economy does not get as large increases in income and spending.The income accelerator affect has been reduced.Lower incomes will not get the large reductions like before and higher income households will not get the large increases like before.This is especially true in Ontario which has the G.S.T tax,the P.S.T tax as well as a $10 to $15 billion deficit.Consumers have less to spend even in a "boom" year.This has an overall drag effect on the Canadian economy as Ontario is about 40% of total Canadian output and income.
 Offsets
 Using the"u" shape of the business cycle as a predictor of economic growth and earnings would make it look like another tepid year for the stock market and for earnings.However one offset is that the value of the Canadian dollar(relative to the American dollar) is down to almost $.91 now and may fall to $.88 by some estimates.This will help to increase exports and export earnings.Secondly the stock market has traded in a narrow range between 11,500 and 13,500 for about two years.So even 2% growth in the economy may be enough for it to finally break out of this trading zone.However it is unlikely that earnings and the stock market will fall as we are still contained in the steadiness of the "u " cycle.send coments to workathon for business advice