Economic analysis

Econowatch: May 2011

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

A funny thing happened on the way to the Tory majority. Partway through the federal election campaign, around the time the words “NDP” and “surge” appeared together for the first time, the S&P/TSX index lost its footing. Economists were quick to read the tea leaves: global investors clearly feared Canada might end up with a weak, wobbly minority government headed by socialists. Instead, Canadians voted for the strong, stable majority promised by Prime Minister Stephen Harper, at which point investors ran screaming for the exits. Over the next four days, the market shed five per cent of its value.

Were investors saying a Harper majority was worse than an NDP minority? Of course not. The episode simply revealed that investors believe the main factor driving Canada’s economic future isn’t which party sits in power, but whether commodity prices stay high. The resource boom was the reason for our strong employment, resilient housing sector and phenomenal stock market returns of the last decade. In the same way, the dramatic rebound in commodities in 2009 enabled Canada to sail through the recession mostly unscathed—whatever the Tory’s Action Plan ads claimed. Investors know this, and that the reverse is also true. A sharp commodities correction could cripple the economy.

In mid-April, Goldman Sachs warned commodities looked like a bubble about to burst. Oil prices began to soften. Then last week, oil, silver, copper and other raw materials crashed hard, dragging the resource-heavy TSX down with them. As of Friday, there were signs commodities were stabilizing. Indeed, prices could go either way. But the lesson is clear: whichever way resource prices go, so go Canada’s fortunes, and there’s nothing Ottawa can do about it.

Good News

-Chrysler turned its first quarterly profit since its bankruptcy in 2009, proving it’s back from the brink. And all it took was $10 billion from taxpayers.

-Small and mid-sized businesses in Canada are more confident than at any time since 2005, according to a survey.

-By 2020, the number of millionaires in Canada is expected to jump 38 per cent to 2.41 million. Oh Canada!

-Same store sales in the U.S. jumped 8.9 per cent in April, the highest rate in a year. There’s nothing like some retail therapy to help people get over a recession.

-U.S. manufacturing expanded in April, said the Institute for Supply Management. Even Wham-O moved half its Frisbee production back from China. Made in U.S.A. is back, baby.

-In April, the U.S. economy added 244,000 new jobs, while employment in Canada rose 58,300, both beating expectations. Time to dust off that resumé.

Bad News

-Blockbuster Canada was forced into receivership, six months after its U.S. parent filed for Chapter 11. Do I still have to pay my late fees?

-Albertans are twice as likely as those in other provinces to be delinquent in their mortgage payments, according to the Canadian Bankers Association.

-In the first quarter, Apple’s share of the global smartphone market surpassed that of Canadian tech star Research In Motion, said IDC. Another black eye for BlackBerry.

-Over the past two decades, the gap between rich and poor in developed countries has widened dramatically, according to the OECD—not only in the U.S., but in Sweden too.

-Debt-ridden Portugal agreed to a $116-billion bailout package from the European Union, but markets continued to lose faith in the country’s ability to repay its debts.

-Get ready to pay more to dine out. Restaurants plan to hike prices 1.8 per cent over the next six months, say analysts. Better stock up on TV dinners.

Signs of the times

Luxury loos


Aftershocks from the Japan quake have hit Canada. Sales of the Honda Civic, the top-selling car in Canada for 13 years, will be “severely restricted” after the quake and tsunami disrupted supplies, forcing the company to slash production at its Alliston, Ont., plant. Toyota will also suspend production at its Ontario plants.

Who’s really more powerful in the U.S. markets? While Wall Street booms, employees from the Commodity Futures Trading Commission climbed aboard the sightseeing Megabus from Washington to New York at a cost of $30 per round trip, to save the agency $1,000 compared to taking the train.

China’s Renren, the country’s answer to Facebook, debuted on the NYSE in a blockbuster IPO, valuing the company at US$6 billion. But analysts say Renren, like red-hot Chinese Internet stocks Youku, an online video company, and Jiayuan, a dating website, is grossly overvalued. The real question now is: when will the bubble burst?

Kohler unveiled the Numi, a luxury toilet with a motion-sensor lid, heated seat, MP3 hookup, touch-screen remote control, custom bidet and foot warmer. It doesn’t clean itself, but at $6,400, chances are buyers can afford to pay someone else to do that.

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