A weekly scorecard on the state of the economy in North America and beyond

The EconogaugeThe purists will tell you that Canada is not “officially” in recession yet. They won’t stamp it with the “R” word until they see two consecutive quarters of negative growth. Fair enough. But the steam is quickly coming out of the “I’ll believe it when I see it” crowd, and a quick look over Canada’s GDP report for January will tell you why.

The economy shrank by 0.7 per cent in the first month of the year, marking a third straight month of contraction, and the troubles are widespread. Twelve of the 18 industry groups declined, as did 18 of 21 manufacturing sectors. In fact, manufacturing, wholesale trade and construction all shrank by more than three per cent from a month before. That pace suggests a near-collapse is underway in all three sectors. Consider that another 11 months like January and we’d be looking at 8.4 per cent economic shrinkage for the year—far worse than even the most dire predictions heading into this year. As CIBC’s incoming chief economist Avery Shenfeld said, if this were to keep up, recession talk would soon give way to serious depression speculation.

Put another way: “The December/January declines mark the worst two-month performance for GDP in at least 11 years,” remarked Benjamin Reitzes, an economist at BMO Capital Markets. “If GDP manages to stand pat in February and March (which might be wishful thinking), the economy would still be on pace to contract at a more than six per cent annualized rate, a record back to 1961.”

So why, then, is there no panic in the streets? Simply put, economic data is a reflection of what has happened. And public mood is a reflection of what’s expected to happen. So when Shenfeld says he believes the darkest hours of this storm passed in the weeks after Christmas, he’s speaking for a lot of us.

In other words, things will start to feel better before the data actually gets better. Indeed, if past downturns are any indication, people will continue losing their jobs for months after the economy begins to turn around, and we will be publishing reports about job losses for months after that. So, more and more analysts and investors are coming around to the idea that the worst of the pain may be over, even though the disease isn’t yet cured.

GRAPH OF THE WEEK: The housing glut

The latest report on the Case/Shiller housing price index showed that prices in 20 major U.S. metropolitan areas dropped by 19 per cent in January. The problem is a dearth of buyers, combined with a huge stockpile of unsold homes. At the current pace of sales, it would take 12.2 months to sell all of the U.S. homes currently on the market.

GRAPH OF THE WEEK: The housing glut


Rally caps!

Yes, the enthusiasm faded a bit this week, but let’s not let a bona fide surge pass unmentioned. Stocks often hit bottom about six months ahead of the economy, so hopes for a second-half recovery are still alive. The Dow is now up 16 per cent from the bottom hit on March 9. The TSX is up 15 per cent. Most amazing of all: last week the Nasdaq hit break-even for 2009. Yes, it’s down 32 per cent from a year ago, but still.

Shop ’til you stop

U.S. consumer spending managed to rise a smidgen in February—up 0.2 per cent. But smidgens count for a lot in the U.S., where consumer spending accounts for two-thirds of the economy. And since that smidgen built on a slim rise in January, what you have is a real-live winning streak at the malls.

Feeling less panicky

The American public is taking small steps out of their bomb shelters. The latest University of Michigan monthly survey showed consumer confidence rose slightly in March, (from 56.3 to 57.3) and the Conference Board’s survey showed a similar uptick. The consensus: Americans feel a lot poorer than a year ago; they don’t expect things to get a lot better soon; but they’re increasingly confident that things won’t get markedly worse either.


Gross? It sure is.

By now, you’ve probably heard, gross domestic product is taking a pounding globally. No more so than in the U.S., when GDP was down 6.3 per cent in the fourth quarter. But it seems gross domestic income—which tallies things like personal incomes and corporate profits—is suffering even worse. In theory these numbers should match, but they rarely do, and some people at the U.S. Federal Reserve think GDI is the more reliable and meaningful number. In the fourth quarter of last year, it plunged by 7.5 per cent—the biggest drop since 1980.

Not buying it

Common sense says that when companies buy back their own stock, investors should follow—after all, management should know when the stock is undervalued. Well, let’s hope that’s wrong. Between 2005 and 2007 U.S. corporations were huge net buyers of their own stock. But in the final three months of last year, buybacks plunged by 66 per cent from a year earlier. For the year, buybacks were down 42 per cent in 2008 from 2007.

Real estate—the sequel

A commercial mortgage delinquency rate of 1.8 per cent might not sound like much, especially considering almost six per cent of U.S. home loans are overdue, but it’s the speed of decline that has economists worried. The delinquency rate on mortgages backed by office building and shopping malls has more than doubled since September, leading some to warn that commercial real estate defaults could be the next storm to hit the beleaguered banks.

Turtling on trade

It seems tough times have taken the shine off world trade. The WTO last week issued a blunt warning about the rise of protectionism worldwide, predicting that trade will shrink by nine per cent this year. Mexico, for example, hiked tariffs on 89 U.S. goods last month alone. Good fences might make good neighbours, but they make everybody poorer.



  • CEO Rick Wagoner has lots of company walking away from General Motors, but not enough to suit the company. GM offered buyout packages to 22,000 retirement-eligible workers, but just over 7,500 have accepted. As one analyst said, given the choice between “the uncertainty of staying versus the uncertainty of going,” $20,000 cash and a $25,000 voucher to buy a new car wasn’t enough incentive to give up a regular paycheque.
  • Feeling glum about the dwindling value of your house? Be glad you didn’t buy a skyscrapper in Boston. The John Hancock Tower, New England’s tallest office building, sold at a foreclosure auction this week for US$660 million. It sold in 2006 for US$1.3 billion.
  • It appears we have more to worry about these days than cellulite. Americans spent US$10.3 billion on cosmetic surgery last year, a drop of nine per cent from 2007, according to the American Society of Plastic Surgeons. The biggest losers: liposuction (down 19 per cent), tummy tucks (down 18 per cent) and breast augmentation (down 12 per cent). Who needs liposuction when you can barely afford to eat?
  • This week’s signs of Armageddon in the print media business are here! Blender, the often-steamy music magazine, has abandoned its print edition, going Web-only due to a 31 per cent drop in ad sales and an 18 per cent dip in newsstand sales. The New York Times, meanwhile, is cutting 100 jobs and is asking remaining employees to “voluntarily” take a temporary five per cent pay cut in return for 10 days off. For those keeping score: economy 96, print media 0.


This week the Obama administration decided to effectively fire General Motors CEO Rick Wagoner, withholding federal aid as long as he remained in the top job. It capped a week of furious finger-pointing and argument over who is most to blame for the world’s financial funk: moribund manufacturing executives? Greedy rich bankers? Somnolent regulators and boards? Clueless politicians? How about all of the above?

Barry Ritholt“I don’t understand the thought process that it’s okay to screw up a bank but it’s not okay to screw up an automotive company. You’re telling one kid don’t play with fire while the other kid is being given a pack of matches.”—Barry Ritholtz, CEO of Fusion IQ

“You know, you can blame the CEO, but the boards of directors are supposed to be the police on duty.” —David Lutz, managing director of Stifel Nicolaus

Luiz Inacio da Silva“This crisis was caused by no black man or woman or by no poor person. This crisis was fostered by irrational behaviour of some people that are white, blue-eyed.” —Luiz Inacio da Silva, president of Brazil

“It’s just too easy to heap opprobrium on Wall Street. And if you noticed, that’s exactly what the politicians do. Could it be that they’re trying to divert our attention away from Washington’s own responsibility for the debacle?”—Niall Ferguson, economic historian, Harvard University

“As we all know, the job of the Fed is to take away the punch bowl once the party gets started. Unfortunately, not only did they not take it away, they added vodka, whisky, gin and all kinds of toxic stuff to it.”—Nouriel Roubini, chairman, RGE Monitor


Thursday: U.S. factory orders for February are expected to show another decline, albeit a smaller decline than January’s 1.9% drop.

Friday: U.S. non-farm payroll numbers for March are expected to show another 700,000 jobs lost south of the border, pushing the unemployment rate to 8.5 per cent. As well, the Institute of Supply Management will report its March reading on the service economy.

Monday: The highlight of a slow week for Canadian economic data will be Monday’s report on building permits for February.

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