Econowatch -


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


EconowatchWhew . . . glad that’s over.

Let the record show that the Great Recession of 2008-09 was finally slain this past summer. The gross domestic product of the United States grew at an annual rate of 3.5 per cent between July and September. Nobody is going to confuse these with the go-go days of 1999, or even 2006. But after a bleak spring and a gut-wrenching winter, we have a bona fide recovery on our hands, and that alone is reason to celebrate, even if you’re not convinced it’ll last.

So, was that it? That’s what all the fuss was about? No bread lines? No hobos riding the rails? So soon we forget. And in truth, for millions of people around the world who lost their jobs and have no immediate prospects of getting a new one, this recession isn’t nearly over. The good news is that our social safety nets are working, more or less, as they are designed to—smoothing out the brutal twists and turns of trillion-dollar economic shocks.

We’re also fortunate that the unprecedented global intervention of governments in the markets (now simply referred to by the shorthand “stimulus”) has had the desired effect. It may not be efficient, and it certainly creates longer-term problems that will need to be dealt with. But when government pours hundreds of billions of dollars into the economy—buying old cars for more than they’re worth, paving roads that may or may not need to be paved, simply sending large cheques to beleaguered consumers—you can buy yourself a decent little recovery. That might sound obvious now, but 12 months ago nobody was sure that would even work.

The huge, unanswered question, of course, is whether recoveries purchased in that manner can really be called “recoveries,” or if this thing we’re seeing is really something else. Specifically, have we merely bought ourselves a little time? As Robert Brusca, author of a well-regarded economic newsletter, noted this week, businesses are still cutting inventories, not building them. They are still laying off workers, not hiring them. And, after the initial rush of consumer incentives expired, retail spending has receded.

Here in Canada, the economy unexpectedly lost ground in August—a sobering reminder of just how tenuous and fragile the situation remains.

The bulk of the numbers say this is a recovery, and a pretty decent one at that. It just doesn’t really feel like one.

GRAPH OF THE WEEK: A soaring loonie isn’t all bad

There’s a lot not to like about a strong Canadian dollar for retailers and manufacturers, but at least it’s made oil more affordable here than in some other parts of the world. Here are oil prices in four currencies as of last week.

A soaring loonie isn’t all bad


House prices up
Canadian house prices continued to march higher in August. The Teranet-National Bank index rose two per cent from the month before, with increases coming in all six cities covered by the index. Prices were still down 3.4 per cent from the year before, but the annual decline is much improved from the drop of 6.9 per cent in May.

So durable
U.S. factories are crawling back to life if orders for durable goods are any indication. Orders rose in September by one per cent, the fourth increase in six months. It’s a sign businesses are once again investing in machinery.

Master marksman
Give credit to Mark Carney, the Bank of Canada governor. The man knows how to bag a loon. After setting his sights on the soaring dollar, saying it poses a threat to Canada’s economic recovery, the loonie began falling back to earth. At around US92 cents at the end of last week, the dollar is at its lowest level in three weeks.

Fewer on EI
America’s job market continues to improve, albeit in baby steps. First-time claims for employment insurance fell by 1,000 to 530,000 during the third week of October, while the number of ongoing insurance claims dropped too.


Bringin’ down the house
America’s housing recovery still looks dubious after sales of new homes plunged 3.6 per cent in September, disappointing economists and sending markets worldwide into a tailspin. Home sales fell to an annual rate of just 402,000, nearly 40,000 below what the analysts were expecting. Economists attributed the drop to the coming end of a tax credit for new homeowners. Congress has proposed extending the program.

More pay, but fewer jobs
Non-farm payrolls in Canada continued to fall in August, dropping 0.8 per cent as another 110,200 jobs were cut. Job losses were felt across all private sector industries, with manufacturing being hit particularly hard as employment fell 1.3 per cent. There was some good news in the data from Statistics Canada. For those who still have their jobs, average weekly earnings grew two per cent over the year before, outstripping inflation.

Shrinking GDP
Canada’s economy fell back into the red in August, shrinking 0.1 per cent. That follows flat growth in July. Behind the contraction were the energy and manufacturing industries. The poor showing also raises serious questions about whether the Canadian economy will be able to grow in the third quarter, as expected.


Signs of the times

  • Buying a Wii this Christmas could be a lot easier than in years past. Japan’s Nintendo, which makes the video game console, has slashed its sales forecast amid the weak economy and mounting competition from the Sony PlayStation and Microsoft Xbox platforms. Even last year, with recession fears near their peak, hopeful buyers faced huge lineups for a chance to snag one of the gaming systems.
  • Who says luxury is dead? Toyota has been suffering steep losses and slumping sales, but that hasn’t stopped it from building a new US$375,000 super-car, the 552-horsepower Lexus LFA. In fact, there is so much demand that Toyota won’t actually sell the cars. It will only lease them for the first two years to make sure they aren’t snapped up by brokers who want to flip them for a profit. Toyota says it plans to make just 500 LFAs.


Jubilation, the U.S. economy is growing again! Or is it really? When GDP rose 3.5 per cent during the third quarter, the first gain in two years, some hailed it as proof a recovery is in full swing. Others warned much of the improvement was due to Uncle Sam’s spending. Either way, for many people, it still feels like a recession.

Barack Obama“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well.”—President Barack Obama

“For every person out of work, for every family facing foreclosure, for every small business facing a credit crunch, the recession remains alive and acute.”—U.S. Treasury Secretary Timothy Geithner

Ken Mayland“We’re beginning to crawl out a very deep hole.” —Ken Mayland, president, ClearView Economics

“If, as we fear, consumption growth remains unusually lacklustre, then GDP growth will slow to a crawl again.”—Paul Ashworth, Capital Economics

“The challenge here is to get organic growth—growth that isn’t helped by fiscal steroids.”—Brian Bethune, economist, IHS Global Insight

“While some may promote the stimulus as the saviour of the economy, it is a claim only the Balloon Boy’s dad would make.” —Republican Rep. Kevin Brady, Texas

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