Economic analysis


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

EconowatchMy colleague Paul Wells is fond of saying that when everyone in Ottawa knows something about federal politics, it invariably ends up to be false. While there’s no doubt this is true, it’s an affliction that is not unique to our nation’s capital. It applies just as much to the economy.

Right now, the accepted truth on our immediate economic future goes like this: “Oh sure, the worst might be over, but this is probably just a sucker’s rally. And even if we can avoid another nasty relapse on the markets, the recovery is going to be long, gruelling, and almost as bleak as the downturn itself.” No doubt, there is a strong rationale to back up this hardening consensus. After all, job losses continue in both Canada and the U.S., and while consumer confidence is rising, it’s still fragile. We are still bracing for the worst.

But the thing is, when everybody’s expectations get hammered down to the point where we’re all good and sombre, that is precisely when the data will provide some pleasant surprises. And sure enough, the data emerging from major economies is not only getting stronger, it’s getting a lot stronger than anyone expected a couple of months ago. The Conference Board’s index of leading indicators—which takes into account 10 different economic factors, including stock prices, manufacturing sales and personal incomes—rose for a fifth straight month and has now recovered two-thirds of its decline.

Aaron Smith, an analyst with Moody’s, is careful not to sound the all-clear, but he does say that “the degree of improvement in the leading index does, however, make a stronger case for sustaining growth into 2010.”

It’s not just a few isolated optimists overreacting to statistical anomalies. Long-time bears, like Jim Grant of the Interest Rate Observer newsletter, point to convincing evidence that this recovery is more durable than most would have expected. History shows that the sharper the decline, the quicker the recovery. “The world is positioned for disappointment. But, in economic and financial matters, the world rarely gets what it expects,” he wrote recently.

If these trends hold up (admittedly a big “if”), we will look back on the past year’s turmoil as an incredibly sharp, and surprisingly short, recession. And, much to the chagrin of avowed free marketers, perhaps the strongest argument on record in favour of drastic and early government intervention to avert economic calamity.

GRAPH OF THE WEEK: The young and the jobless

Job losses haven’t hit all Canadians equally. Employment is down sharply among young people. But unlike in the previous two recessions, it has actually risen six per cent in the fast-growing 55-and-over demographic.

The young and the jobless


Well worth it
Household net worths are finally clawing their way back up. For the first time in a year, household net worth in Canada rose, by 2.6 per cent, to $5.6 trillion. Meanwhile, U.S. household net worth grew for the first time in two years, rising 3.9 per cent, to US$53.1 trillion during the second quarter.

Greater goods
Canadian wholesale sales jumped 2.8 per cent in July, dwarfing the 0.8 per cent gain economists had been expecting. The biggest increase was in the auto sector, fuelled by exports to the U.S., with sales up 14.2 per cent. But the building sector also performed well.

Gone shopping
Americans brushed the cobwebs off their wallets and went shopping in August, though most of the sales came as a result of the cash-for-clunkers car program. The U.S. Commerce Department reports retail sales climbed 2.7 per cent in August after falling 0.2 per cent in July.

Factory lines
Canadian manufacturing sales were up 5.5 per cent in July as 15 of 21 industries saw increases in the volume of goods sold. Along with an expected rise at auto plants, aerospace products were up over 12 per cent and plastic and rubber product sales jumped nine per cent.


Faulty towers
Commercial real estate is seen by many as the next shoe to drop in the recession, and there are signs that may already be happening. Prices in the U.S. plunged 5.1 per cent in July from the month before, and are down 37 per cent from their peak in 2007, according to the Moody’s/REAL Commercial Property Price Index. In Canada, commercial real estate vacancies are surging in Toronto, Vancouver and Calgary, according to CB Richard Ellis Limited.

Labour pains
The U.S. unemployment rate rose to 9.7 per cent in August from 9.4 per cent a month earlier, and up from 6.2 per cent last year, according to the Labor Department. The pain was felt in the majority of states, with joblessness increasing in 27 states from July, while 16 saw rates decrease. The rest stayed the same.

For all the talk of a recovery in the U.S. housing market, mortgage delinquency rates continue to surge. The rate hit a record high in August, as 7.58 per cent of homeowners were more than 30 days behind in their mortgage payments, up from 4.89 per cent last year. It was the fourth straight month of rising delinquencies. Among those with subprime mortgages, delinquency rates were an astonishing 41 per cent, up from 39 per cent the month before.



  • FedEx reported that its profit fell over 50 per cent in its latest quarterly results, as people shipped lighter and fewer packages during the recession. That’s troubling news coming from a company that is often looked to as an economic bellwether. But there are some positive signs of a turnaround down the road, said the company, like a pickup in the number of international shipments.
  • Gas prices may be down compared to last year, but Canadians have been driving less during the downturn. According to Statistics Canada, Canadians drove 70.8 billion km in the first quarter of 2009— 2.7 per cent less than last year. They were also downsizing their rides, from SUVs and pickups to cars and station wagons. Meanwhile, the demand for used cars is surging, along with their prices, according to DesRosiers Automotive Consultants.


In his first visit to the White House since President Barack Obama was elected, Prime Minister Stephen Harper last week once again expressed his concerns about the “Buy America” provisions in the U.S. stimulus package. The President offered calm words of reassurance, but many, including Harper, worry trade wars are on the horizon.

Stephen Harper“The worst possible signal that we could send to the world right now would be an increase in protection and particularly a procurement trade war between Canada and the United States.”—Prime Minister Stephen Harper

“There is no prospect of any budding trade wars between our two countries.”—U.S. President Barack Obama

“The protectionist juggernaut shows no sign of slowing down.” —Simon J. Evenett, professor of international trade, University of St. Gallen, Switzerland

“We look like Boy Scouts down there. You can’t fix it in 42 minutes or an hour with the President.”—Liberal Leader Michael Ignatieff

Jayson Myers“The provinces and municipalities will say, ‘Why keep our markets open if we’re being locked out of the United States?’ ”—Jayson Myers, CEO, Canadian Manufacturers and Exporters

“Quite a few Americans believe that defeating new trade agreements and gutting existing ones would protect American jobs. In reality, those actions would . . . repeat the mistakes of the 1930s.” —David Rockefeller, former CEO, Chase Manhattan Bank