US, Canada pledge cooperation in combatting global recession

President Barack Obama, on his first foreign trip since he took office Jan 20, said Thursday the US and Canada had a shared commitment to economic recovery and would also jointly act to strengthen the ailing North American car industry.

"The people of North America are hurting, and that is why our governments are acting," Obama said at a joint news conference with Canadian Prime Minister Stephen Harper. "We know that the financial crisis is global and so our response must be global."

Obama said the US and Canada were working closely together bilaterally and within the G8 and G20 - two blocs made up of the world's largest economies - to see how to restore confidence in financial markets.

Like much of the world, both nations are battling a severe recession. In Canada, the world's eighth-largest economy, the unemployment rate in January soared to a four-year high of 7.2 percent. That rate was at 7.6 percent in the US, the highest since 1992.

Harper said he and Obama agreed that Canada and the US "must work closely to counter the global economic recession by implementing mutually beneficial stimulus measures".

"We know, as a small economy, we can't recover without recovery in the United States," he said.

Canada is the US' largest trading partner, with trade between the two countries valued at $1.5 billion a day - making it the world's largest commercial relationship. Harper said Canada's economic stimulus package actually removed duties on some imported goods.

While Obama has vowed to combat protectionist impulses, Canada had expressed concerns about the "buy American" provision in the $787-billion US economic stimulus package signed into law this week.

The US measure, which bars foreign manufacturing goods from being used in government projects, was modified in the final bill to assure it doesn't break existing trade agreements.

"I know some aspects of trade invariably cause political concerns," Harper said. "But nobody should think for a minute that trade between Canada and the United States is anything but a benefit."

Obama said he brought up the idea of including labour and environmental provisions within the main body of the North American Free Trade Agreement (NAFTA). But he also reaffirmed that "now is a time when we've got to be very careful about any signs of protectionism".

"As obviously one of the largest economies in the world, it's important for us to make sure that we showing leadership in the belief that trade ultimately is beneficial to all countries," he said.

NAFTA had threatened to become an acrimonious issue during this visit. On the presidential campaign trail, Obama had said that the US would threaten to pull out of NAFTA unless Canada and Mexico agreed to strengthen labour and environmental protections. But he has softened his stance since taking office.

US annual inflation wiped out, deflation looms

Annual US inflation disappeared in January in the weakest reading in more than a half century, data showed Thursday, stoking debate over deflation risks in the recession-mired economy.

The Labor Department reported that the consumer price index (CPI) for last month was unchanged from January 2008 under the effect of a precipitous fall in energy prices from July record peaks.

It was the weakest annual inflation reading since August 1955, the department said, coming as the country entered its second year of recession. Consumer demand has tanked in the face of sharply rising unemployment and the worst global economic crisis since the Great Depression.

Last year CPI had ended virtually flat, rising a mere 0.1 percent in December from a year ago. The smallest calendar year increase since 1954 highlighted plummeting consumer demand, and followed 4.1 percent inflation in 2007.

On a monthly basis, the Labor Department said CPI rose for the first time in six months, by 0.3 percent in January, matching most analysts's forecast.

The monthly CPI headline number had fallen 0.8 percent in December. The last time it climbed was in July, by 0.7 percent, when crude oil prices hit all-time highs above 147 dollars a barrel.

Core CPI, which strips out volatile food and energy prices, rose 0.2 percent in January from December, when it was flat. The number was slightly higher than analysts' forecast of a 0.1 percent rise. On a 12-month basis, core inflation was up 1.7 percent.

Analysts were divided over whether the Labor Department report pointed to risks of deflation, a pernicious downward spiral of falling prices, earnings and economic activity that is difficult to counter.

The Federal Reserve this week projected the economy would shrink in 2009 by as much as 1.3 percent, following a 3.8 percent contraction in the 2008 fourth quarter.

"The price rises may allay deflation fears temporarily, but they probably reflect a temporary bounce at the start of the year after severe discounting during the holiday season. Deflation risks remain," said Nigel Gault, chief US economist at IHS Global Insight.

But Dean Maki at Barclays Capital Research focused on the rise in core inflation: "The report should put to rest some of the fear that the weak core readings of the past few months suggested that core deflation was a possibility in the near term."

Maki nonetheless emphasized that core inflation was expected to slow on a year-over-year basis in coming months "as slack in the economy builds."

Energy prices led the January rise in consumer prices, climbing 1.7 percent after falling 9.3 percent in December, driven by a 6.0 percent surge in gasoline prices.

Compared with a year ago, energy prices were a hefty 20.4 percent lower and gasoline prices were down 40.4 percent.

Consumer food prices edged up 0.1 percent on a monthly basis and were 5.2 percent higher than a year ago.

Disinflation, a decrease in the inflation rate, appeared to be the overriding trend, despite the gain in energy prices.

"Disinflationary pressures slowed down with the modest rebound in energy prices. However, inflation should continue to decrease in the coming months, turning negative for most of 2009," said Elsa Dargent, an analyst at Natixis.

Ian Shepherdson, chief US economist at High Frequency Economics, also saw prices continuing to fall as the economy sinks further into the recession that began in December 2007.

"Disinflation pressure is still intense and will stay that way for some time," Shepherdson said.

On Thursday, the Labor Department reported US wholesale prices -- inflation in the pipeline -- rose 0.8 percent in January after five months of decline, driven by higher energy prices, but were down 1.0 percent from a year ago.

US, China pledge economic cooperation

The United States and China have agreed to work together to stabilise the global economy and fight climate change. The pledge came out of talks in Beijing between US Secretary of State Hillary Clinton and Chinese Foreign Minister Yang Jiechi. Clinton and Jiechie also said a regular bilateral dialogue on economic issues would be expanded to include security concerns. Jiechi said China wanted to see its foreign cash reserves invested safely and wished to continue working with the US. Clinton thanked China for its confidence in US treasury bonds. China, with foreign exchange reserves of about two trillion dollars, is the world's largest holder of US government debt. Clinton's visit to China is the fourth, and final, stop on her tour of Asia that has also taken her to South Korea, Indonesia and Japan. It is her first trip abroad as secretary of state.

Obama orders US tax cut rollout

US President Barack Obama ordered the Treasury to implement tax cuts for 95 per cent of Americans, fulfilling a campaign pledge he hopes will help jolt the economy out of recession.

The tax cuts are part of a $US787 billion ($1.2 trillion) economic recovery plan passed by the Democratic-controlled Congress over Republican opposition. The aim is to put more money in the pockets of Americans and stimulate the economy by increasing consumer spending.

"I'm pleased to announce that this morning the Treasury Department began directing employers to reduce the amount of taxes withheld from pay cheques, meaning that by April 1st, a typical family will begin taking home at least $US65 more every month," Mr Obama said in his weekly radio address.

"Never before in our history has a tax cut taken effect faster or gone to so many hard-working Americans," he said.

With tens of thousands of Americans losing their jobs in the midst of a global economic meltdown, Mr Obama has said fixing the US economy is his top priority. He has acknowledged that his success or failure in that will define his presidency.

Mr Obama campaigned for the White House last year on a pledge to roll back his predecessor George W Bush's tax cuts on the wealthy few and implement a cut for 95 per cent of Americans.

His announcement came a day after one of his top economic advisers, former Federal Reserve chairman Paul Volcker, said the global economy may be deteriorating even faster than during the Great Depression of the 1930s.

Since being sworn into office on January 20, Mr Obama has sought to reassure Americans that his Government is tackling the economic crisis boldly and swiftly - holding near-daily events to announce measures to stem mortgage foreclosures, prop up failing banks, rescue the ailing auto industry and drive his stimulus package through Congress.

The measures have received a mixed early reaction from gloomy financial markets uncertain whether they will succeed in arresting the downward economic spiral.

The package includes $US282 billion in tax cuts - the Republicans pushed unsuccessfully for more - and $US120 billion for public works projects including highway and rail projects.

'Hazardous road ahead'

"But as important as it was that I was able to sign this plan into law, it is only a first step on the road to economic recovery," Mr Obama said in his address.

"None of this will be easy. The road ahead will be long and full of hazards. But I'm confident that we, as a people, have the strength and wisdom to carry out this strategy and overcome this crisis," he said.

His announcement on the tax cuts capped a week that saw him sign the stimulus package into law and announce new measures to help families facing foreclosure and those struggling to make mortgage payments.

He will step up the pace next week when he holds a summit at the White House on Monday to look at how to rein in the country's ballooning deficit and bring Government spending under control as the economy starts to recover.

Lawmakers, academics and business leaders have been invited to share their ideas on how to cut the $US1 trillion deficit that Mr Obama inherited along with two costly wars in Iraq and Afghanistan.

Mr Obama will follow the summit with a major speech on Tuesday to a joint session of Congress in which he will lay out his domestic and foreign policy agenda. Inevitably, the economic crisis will loom large.

After a short breather on Wednesday to host a concert honouring Stevie Wonder, Mr Obama on Thursday will unveil his proposed budget for the 2010 fiscal year, which will reflect the big increases in public spending as part of the economic recovery plan.