Almost from the beginning of this economic downturn, experts have been rushing to tell us how different this one is from all others that have gone before. Yes, we’ve had stock market bubbles pop, we’ve seen the real estate market crash, we’ve seen Wall Street paralyzed by fear, and governments printing money in an effort to avert catastrophe. But never quite like this.
This is unsettling for many reasons. Human beings look to history to make sense of the future. The Great Depression was a catastrophe, but we understand it. We know essentially what caused it, what policies failed, and which ones eventually worked. Japan’s lost decade is another cautionary tale that provides useful lessons and context.
But if economists are right, and the current global recession is fundamentally different this time, we need to find better ways of gauging our economic health. Retail sales, employment, housing starts—they’re all useful to a point. But if you want to know what’s really going on, you have to look at the numbers behind the numbers.
Take Canada’s June employment figures, for example. The headline number was a decline of 7,400. Not too bad considering the previous four months had seen over 221,000 jobs vaporized. But all jobs are not created equal, and when you scratch beneath the surface, the picture isn’t so encouraging. In all, 47,500 full-time jobs were lost, offset by the creation of 40,100 part-time positions. The numbers were further flattered by 37,200 newly self-employed, offsetting the fact that 44,600 paid positions disappeared. In reality, tens of thousands of people lost full-time jobs, and replaced them with part-time jobs working on their own. That’s not to say self-employment is worthless. Indeed, as CIBC World Markets economist Benjamin Tal points out, with the rise of the Internet and an aging populace, we may be heading for a world in which a lot more people opt for self-employment. But there’s a fundamental shift happening in the job market.
Such discrepancies are everywhere these days. The number of Americans collecting jobless benefits has levelled off. That seems like good news, except that a record number of people are seeing their benefits expire before they get a new job. Many aren’t getting hired off the unemployment line, they’re getting dumped off it.
Nothing is exactly as it seems because nothing is exactly as it used to be. Numbers taken at face value can lead you astray. If you want to know what’s happening, you have to look deeper.
GRAPH OF THE WEEK: Is the recession over?
Weekly claims for unemployment insurance in the U.S. have been an amazingly accurate indicator in the past. As you can see, the last two U.S. recessions ended just after the claims peaked. This time, claims appear to have peaked in March, prompting some economists to suggest that the recession is already over.
THE GOOD NEWS
The International Monetary Fund is more optimistic about the economy than it was three months ago. The agency expects global growth to hit 2.5 per cent in 2010, rather than the 1.9 per cent forecast in April. The IMF also upped Canada’s growth outlook to 1.6 per cent from 1.4.
The Organisation for Economic Co-operation and Development’s basket of leading economic indicators suggest many major economies could reverse their declines by year’s end. The OECD indicators rose by 0.8 to 94 in May, the sharpest increase this year.
Closing the gap
America’s yawning trade gap has been one of the most worrisome trends in recent years. In short, the U.S. buys from the world far more than it sells.
But in May the gap narrowed to US$26 billion, the smallest in a decade. More U.S.-made goods were sent abroad, even as demand for foreign gadgets and industrial supplies slumped.
Canadian home sales jumped 31.5 per cent in the second quarter from the prior quarter, and 1.4 per cent from the year before. Low rates and more affordable prices are driving sales, say economists.
THE BAD NEWS
For American consumers, fear is once again the dominant mood.The University of Michigan consumer sentiment index plunged in June to its lowest level since March, essentially erasing all the green shoots of the past couple of months. The index is still above where it was last November, when it reached the lowest point in 30 years. But the sharpest decline in June was in consumers’ expectations of the future.
A commercial bomb
Everyone knows there’s a crisis in the housing market. Now get ready for a brutal collapse in U.S. commercial real estate. The sector is worth US$3.5 trillion, and as mortgage default rates among office towers, hotels and malls soar, Real Capital Analytics warned of losses totalling 12 per cent of the market. Carolyn Maloney, chairwoman of the congressional Joint Economic Committee, called the situation a “ticking time bomb” that threatens to create huge losses for the banks.
Sales at U.S. retailers plunged in June by 5.1 per cent from a year ago, according to the International Council of Shopping Centers. Among the hardest hit: luxury stores and gasoline stations. In fact, drug and discount stores did best, showing that consumers continue to trade down and focus on the essentials. If there’s any solace to be taken, it’s that the weather was crummy through much of the U.S. that month.
SIGNS OF THE TIMES
- Shopping for a new Chevy is about to get easier, and more interactive. Just out of bankruptcy, General Motors is planning to launch a program to sell cars on eBay. Some automakers already sell their used vehicles on the auction site, but GM plans to sell new cars as well. Beginning in California, buyers will be able to bid or click on eBay’s “buy it now” option to pick up a new set of wheels.
- The Chicago Cubs may be preparing to file for bankruptcy, according to a report from Bloomberg. The team’s owner, Tribune Co., has been looking to sell the team and bankruptcy could help clear the slate for potential buyers. Like many other media companies, Tribune Co. is struggling to pay off debts and hopes to raise about $900 million from the sale of the historic ball club.
- Advertisers are finally cooling to the social networking trend. Late last year, some analysts were expecting double-digit growth in ad revenue from sites like Facebook. But a new report from eMarketer says spending may actually drop this year. Leading the decline is MySpace, which has recently gone through a management shuffle and a round of layoffs as it struggles to lure new users.
- It’s been a turbulent year for airlines, and it’s not getting any smoother. Despite cutting flights, jobs and grounding planes to save money, airlines haven’t seen the kind of resurgence in passenger numbers—especially lucrative business travellers—they need to be profitable. Analysts say that could spell trouble for many major airlines, like British Airways, that are already running on fumes.
Though countries have already committed trillions in stimulus spending since the recession began, some economists have floated the idea of Stimulus: the Sequel as a way to keep the economy from slipping further into recession. While critics blasted the suggestion, the White House appeared to send mixed signals about its position. In the end President Obama threw cold water on the idea—at least, for now.
“We’re not in a free fall, but we’re not in a recovery either . . . A second [stimulus plan] may well be called for.”—Warren Buffett, CEO, Berkshire Hathaway
“Policy makers should stay calm in the face of disappointing early results . . . But they should also be prepared to add to the stimulus now that it’s clear that the first round wasn’t big enough.” —economist Paul Krugman
“A second stimulus is an even worse idea than the first stimulus.” —Mitch McConnell, U.S. Senate minority leader
“A second stimulus should be the one they should have done the first time, something relatively fast and thoughtful.”—Phillip Swagel, Georgetown University
“I don’t think the time is here where we would consider further stimulus spending. The key is to get spending out the door and the federal bureaucracy has been working hard and with some success to accomplish that.”—Finance Minister Jim Flaherty
“[Some] believed the recovery plan should have been even larger, and they’re already calling for a second recovery plan. But . . . the recovery act was not designed to work in four months. It was designed to work over two years.”—U.S. President Barack Obama
THE WEEK AHEAD
Friday, July 17: Statistics Canada will report the Consumer Price Index for June. Little, if any, gain is expected.
Tuesday, July 21: Weekly U.S. chain store sales will be reported. Sales have been up slightly for the first two weeks of July.
Wednesday, July 22: Retail trade figures for the month of May will be released by Statistics Canada. After an unexpected drop in April, analysts don’t expect any significant rebound.