Economic analysis


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

The pessimists will focus on the fact that U.S. gross domestic product tumbled at a rate of 6.2 per cent in the final months of last year. They will gravely point out that this dismal reading was the worst since early 1982. Domestic naysayers will chime in that Canada’s 3.4 per cent decline was also ugly, and would’ve been worse if not for the fact that Canadian businesses kept churning out goods faster than they were being bought, driving up inventories and certainly worsening this year’s economic pain.

The pessimists will, of course, dwell on the continued declines in U.S. durable goods orders (down another 5.2 per cent in January—a record sixth consecutive down month) and warn that the world’s biggest economy is still getting worse, not better. Naturally, they’ll lament the still-plunging real estate markets on both sides of the border. And, of course, they’ll point with horror at the U.S. Treasury Department’s injection of another US$30 billion in capital into AIG, prompted by the insurance giant’s record US$61.7-billion quarterly loss. Then there’s the Dow Jones Industrial Average plunging below 7,000 and the S&P/TSX composite dipping under 8,000 this week—the first time either index has been in that neighbourhood since 1997.

Yes, there’s plenty for the doom-and-gloom crowd to chew over. But the optimists? They can put their faith in Tiger Woods. Rana Chauhan, chief investment strategist with Counsel Wealth Management, noticed last week that Canadian stocks peaked last June, just days after Woods limped to victory at the U.S. Open. Woods went off for knee surgery and the stock market promptly tanked.

Woods returned last week and won his first couple of matches, coinciding with a modest rally on the stock market. Perhaps, Chauhan joked, with Woods finally back and ready to dominate the world of golf again, the earth’s rotation has regained its balance, and a market bottom is at hand. Scoff if you will, but have you got anything better to believe in right now?

It must be noted, however, that given there was yet another plunge in consumer confidence last month, the pessimists still outnumber the optimists by a hefty margin.


Bank earnings

The kings of Bay Street continue to offer a fairly calm harbour from the storm hitting world markets. Canada’s major banks reported total profits of $3 billion in the first quarter and dividends remained steady. Yes, I know: why should you celebrate the massive profits of fat cat bankers? Well, trust me, if they were suffering like U.S. banks, we’d be in even worse shape than we already are.

Gas prices

You don’t have to sell your SUV for scrap metal just yet. One of the side effects of a global economic crisis is less demand for oil. And while that is bad news for the Canadian economy overall, it means cheaper prices at the pumps. TD Bank projects Canadians can expect a year of stable prices, around 85 cents a litre—same as in 2004.

Personal income and spending

Post-Christmas sales lured a few Americans back into the malls in January, and produced an unexpected jump in incomes and spending. However, most people opted to pocket their increased income, pushing the U.S. savings rate to five per cent—the highest it’s been since 1995. That’s arguably a healthy and sensible trend, but it’s yet another sign that American consumers are preparing for darker days ahead.



All signs in the real estate market continue to be grim on both sides of the border. In Canada, the Teranet-National Bank composite house price index declined for a fourth straight month. The results in the U.S. were dramatically worse. The National Association of Realtors reported home sales hit their slowest pace in more than a decade. The national median house price is down 26 per cent from its 2006 peak—to US$170,300. They estimated a stunning 45 per cent of all sales were of foreclosed and distressed properties. “Despite the seemingly constant chorus that the housing market is showing signs of stabilizing, the actual data just don’t seem to want to co-operate,” analyst Richard Moody said.

Consumer confidence

The Conference Board reported that its monthly index of consumer confidence fell to an all-time low of 25 in February—shattering the previous record low of 37.7 set in December. Just 4.4 per cent consider jobs to be “plentiful.” “Not only do consumers feel overall economic conditions have grown more dire, but just as disconcerting, they anticipate no improvement over the next six months,” said the Conference Board’s lead researcher Lynn Franco.


The number of Americans filing for first-time jobless benefits rose again, to 667,000 last week. The total number receiving benefits topped 5.1 million—the fifth straight week that ongoing jobless claims have set a new record. Just 2.8 million were receiving benefits a year ago.

Capital investment

StatsCan’s annual survey of capital spending plans shows businesses plan to cut investment in machinery, equipment and buildings by a hefty 13.1 per cent this year. And who can blame them? Fourth-quarter GDP numbers were bleak: exports of goods and services down 4.7 per cent; personal spending falling by 3.3 per cent; manufacturing off by 4.3 per cent.


  • The credit crunch has hit Italy harder than most countries, and the Mafia couldn’t be happier. According to Italy’s national shopkeepers association, risk-averse banks have clamped down on all sorts of credit, driving an estimated 180,000 small business owners to borrow from organized crime syndicates. Annual interest rates run at about 120 per cent, and repayment terms are non-negotiable.
  • A year ago, tech experts were sure that dial-up Internet service was on its last legs. But with the sorry state of the economy, EarthLink and NetZero are betting there’s still a viable business offering ultra-cheap (25 cents a day) and painfully slow dial-up Web access.
  • The newspaper business continues to implode. Last week, Denver’s Rocky Mountain News shut down; the owner of the Philadelphia Inquirer and Daily News filed for bankruptcy; and Hearst Corp. said it will shut down the San Francisco Chronicle unless staff agree to major cost cuts. Meanwhile, Canada’s biggest media company, CanWest, is scrambling to restructure ahead of a March 11 deadline.
  • Don’t be too hard on yourself if your savings have cratered. The world’s greatest investor, Warrren Buffett, revealed that his investments lost US$11.5 billion (or almost 10 per cent) in 2008—his worst year ever. Still, he’s not panicking. “America has had no shortage of challenges. Without fail, however, we’ve overcome them,” wrote Buffett. “America’s best days lie ahead.”latest intelligenceA 3.4 per cent drop in Canada’s gross domestic product in the fourth quarter means that this country has clearly followed the U.S. into recession. The Bank of Canada Tuesday slashed interest rates to an unprecedented 0.5 per cent, and sparked debate on just how bad things have gotten, and what can be done if the economy continues to sour.


A 3.4 per cent drop in Canada’s gross domestic product in the fourth quarter means that this coutnry has clearly followed the U.S. into recession. The Bank of Canada Tuesday slashed interest rates to an unprecedented 0.5 per cent, and sparked debate on just how bad things have gotten, and what can be done if the economy continues to sour.

“I expect the numbers to continue to get worse for some time. They will get better, eventually. But in the meantime, we have to get the stimulus dollars into the economy to help Canadians, help them get jobs and help [their] communities.” —Jim Flaherty, federal minister of finance

“Those who have an expectation that things are going to recover dramatically and quickly as we come out of this, that’s less and less likely all the time.” —Gordon Nixon, CEO, Royal Bank of Canada.

“What is really troubling is the feeling of being in free fall. Where is the bottom? It’s not here yet.” —Dale Orr, economist

“Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.” —Mark Carney, governor, Bank of Canada.

“Even with the sharp decline in fourth-quarter GDP, the current quarter is expected to show an even deeper setback. Canada’s recession began in earnest early in the fourth quarter.”

“Simply put, the Bank of Canada is preparing to pull out all the stops to support the economy.”  —Doug Porter, deputy chief economist BMO Capital Markets.


Thursday: The Ivey Purchasing Managers Index for February will indicate the buying activity among businesses. The index has been in negative territory (below 50) for the past three months running.

Friday: The U.S. non-farm payrolls report is expected to show another sharp deterioration in the employment situation in the U.S. —analysts expect over 600,000 jobs were lost last month.

Monday: CMHC will report housing starts for February. New home construction is now running at its slowest pace since 2001, and most economists are expecting that trend to continue for the time being.