Whatever faith there was left in the Canadian economic miracle, it is fast eroding. Everyone from bank economists to the parliamentary budget officer to the International Monetary Fund is cutting growth estimates. Last week’s report that GDP shrank in August by 0.1 per cent puts the annual growth rate somewhere below two per cent. The results are much the same in the U.S., where growth was two per cent last quarter, up from 1.3 per cent.
Diehard optimists will say any growth is good growth. But today’s climate is starting to feel suspiciously like a recession again.
In the U.S., recent growth has been attributed to a blip in government defence spending. Business investment hasn’t been as weak since 2009. In Canada, growth hangs on the prospect that manufacturing and mining will pick up steam again. How realistic is that? With 10 of 18 industries showing declining output in August, the GDP drop “was no fluke,” said Bank of Montreal chief economist Douglas Porter in a note. “The main message here is that the economy is struggling to churn out any growth whatsoever.”
So what does two per cent growth offer? It does nothing to break the jobless cycle or lift middle-class fortunes. Canada’s unemployment rate is stuck at 7.4 per cent, not far off from the U.S.’s 7.9 per cent. Food bank use is up 31 per cent since 2008, and still rising. Two per cent growth also means more or less stagnant tax revenues, and less chance governments will be able to pay off deficits anytime soon. It could throw a wrench in Ottawa’s plan to balance the budget in three years.
Predictions in 2009 that North America was headed for a “lost decade” now appear depressingly accurate. Two per cent is the new norm, and unfortunately, it’s just not good enough.
The good news
- At last, some good news from Research In Motion, which said 50 carriers are now testing its new BlackBerry 10 phones. Shares jumped 10 per cent.
- Home prices in the U.S. are back on solid ground, gaining for the seventh straight month. The S&P/Case-Shiller composite index was up 0.9 per cent.
- The private sector in the U.S. added 184,000 jobs in October, more than expected. The unemployment rate rose slightly to 7.9 per cent, but that was due to people rushing into the job market, showing confidence is on the rise.
- After five years of cuts, Canadian firms boosted R & D spending by 6.1 per cent in 2011, to $11 billion, according to a Research Infosource survey of the 100 top-spending firms.
- Car sales in Canada jumped 7.8 per cent in October. Small cars and Chrysler minivans were big hits with buyers. Thanks, Dad.
- Honda has started production of its $4.5-million “entry-level” business jets. A small enough price tag for execs to hide from shareholders?
The bad news
- So far in this third-quarter earnings season, just 36 per cent of U.S. firms say they’re beating sales estimates—the worst showing since the recession.
- Facebook shares fell four per cent last week on the first day employees were allowed to start selling stock. Do they know something we don’t?
- Even German industry isn’t immune to Europe’s economic crisis. MAN SE, a Volkswagen-owned truck maker, plans to stop assembly lines at two German plants.
- The U.S. Treasury says America will hit its debt ceiling by the end of this year, forcing a crisis that could mean a second downgrading of the country’s debt rating.
- Condo sales fell 30 per cent in Toronto in the last quarter and developers, facing a record level of unsold inventory, are delaying projects, says market research firm Urbanation. What goes up . . .
- A report by Peters & Co. says $17 billion in oil sands assets are up for sale, mostly by U.S. firms looking to exit a slumping industry that is struggling with pipeline bottlenecks.
By the numbers
- 10 per cent: The stake in Netflix acquired by billionaire investor Carl Icahn, sending the company’s stock soaring, briefly, 14 per cent.
- 33 per cent: The amount attributed to employee theft of all goods that go missing at Canadian retailers, according to a PWC and Retail Council of Canada survey.
- 10,000: Jobs cut by the Swiss bank UBS. Its investment arm reported a $2.3-billion quarterly loss.
- 400 million: The number of people who will be buying new PCs next year, says Microsoft chief Steve Ballmer. A potential boon for the new Windows 8.
- $4 billion: Disney’s purchase price for Lucasfilm, which it intends to start recouping with new Star Wars films.
Signs of the time: The hard sell
- Once-dominant Japanese electronics firms are suddenly in crisis mode. Sharp is forecasting an annual loss of $5.6 billion and this week questioned whether it can remain “a going concern.” Panasonic said it will post a $9.6-billion annual loss (30 times bigger than analysts expected). And Sony just reported a $198-million quarterly loss.
- Christmas came in October as stores started rolling out holiday merchandise and advertising. Starved of good cheer in recent years, retail sales in Canada are expected to rise 3.5 per cent this holiday season, says Ernst & Young.
- How desperate are carmakers getting? In the U.S., Chevrolet showed off a Hot Wheels-branded Camaro with, yes, flames on the side. Not to be outdone, Honda is targeting female buyers in Japan with a pink Fit model that comes equipped with a special air filter said to prevent wrinkles.
- A private island is deemed to be the ultimate sign of success, and there has never been a better time to buy one. Prices of coastal islands in Canada and the U.S. remain 25 per cent below their pre-2008 high, according to the Wall Street Journal.