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

When a report this week from the Organisation for Economic Co-operation and Development showed the United Kingdom was the only one of the Group of Seven economies to shrink during the third quarter, Fleet Street wailed at the national embarrassment of being dead last. But they could have taken some comfort from the asterisks in the report next to Canada’s name. The data from Canada for September won’t be released until this coming Monday, Nov. 30, and we might still beat the British to the bottom.

It wasn’t supposed to be like this. Two months ago, when the Bank of Canada forecast the economy would grow two per cent during the July to September period, that target seemed wholly within reach. Canada’s resilience during the recession was expected to hold us in good stead come better days. But then the strengthening loonie and worsening employment got in the way. Growth flatlined in July, then dipped in August. Last week the Bank of Canada slashed its forecast, while still holding on to the prospect for “softer growth.”

Maybe. But at CIBC World Markets, they appear to be laying the groundwork for disappointment. “A funny thing happened on the way to Canada’s supposed G7-leading economic rebound,” economist Avery Shenfeld wrote in a Nov. 20 report. “As the horses burst out onto the track, the one with the Maple Leaf on its saddle was still standing in the gate.” As Shenfeld points out, Canada’s major economic rivals, including the U.S., Japan and the eurozone, all showed decent growth in the third quarter. (For instance, America’s economy grew a revised 2.8 per cent.) Yet, for Canada to even crawl out of the red, every data point from September will need a huge arrow next to it pointing straight up at the sky.

Fortunately, we got some encouraging news this week. Retail sales jumped one per cent that month, blowing past analysts’ meager expectations. Economists are clinging to the hope that consumer demand will be enough to turn things around (see “Latest Intelligence” on the opposite page). Don’t be so sure. But even if that happens, there are few signs of life in the rest of the economy. Canada will be playing catch-up for some time.

We can take comfort in one thing though, notes Shenfeld. Our national balance sheet is still the healthiest out of the lot, giving Ottawa more time to wrestle with deficits than in the U.S. and Europe. At least we’ve still got that to hang on to.

The Good News

Recession no more?
The world’s developed countries have officially emerged from the recession, according to the Organisation for Economic Co-operation and Development. The group said economic output among its 30 members edged 0.8 per cent higher during the most recent quarter, the first increase since early 2008.

Cars contribute

Canadian manufacturers shipped 1.4 per cent more goods in September than a month earlier, continuing a trend under way since May. The boost  was mostly due to increased production of cars and trucks, despite the windup of the U.S. cash for clunkers program in August, according to Scotia Capital.

Confidence boost
Canadian consumers are feeling better about themselves and the economy, suggesting a merrier Christmas for retailers this year. The Nielsen Global Consumer Confidence Index rose to 94, up 10 points from where it was in April. That’s a full 10 points higher than what was recorded for consumers in the United States, where confidence is also on the rise. The index measures the status of people’s personal finances, readiness to spend and confidence in the job market.

The Bad News

Bankruptcies rising
Personal bankruptcies among Canadians soared nearly 30 per cent in September compared to August as the country continues to grapple with the impact of job losses stemming from the downturn. On the bright side, the figures from the Office of the Superintendent of Bankruptcy Canada showed the number of corporate bankruptcies declining over the past 12 months, although the number of businesses going under is still much higher than this time last year.

A little help please
More unemployed Canadians are seeking the government’s assistance to pay the bills. Statistics Canada said the number of people seeking jobless benefits rose seven per cent in the month of September compared to August, with Ontario, Alberta and British Columbia reporting the biggest increases.

Building break
The number of new homes being built in the United States fell nearly 11 per cent in October, the biggest decline in 10 months. Meanwhile, a record one in seven U.S. mortgages were either in foreclosure or had payments that were past due in the most recent quarter. It’s not just homeowners with bad credit that are being impacted. Nearly one-third of the foreclosures were Americans with otherwise solid credit ratings, according to the U.S. Mortgage Bankers Association.

Graph of the week

OUT OF BALANCE • There’s a lot to like about Canada’s seemingly rock-solid real estate market. Sales, for instance, have been on the rise. But there’s one troubling aspect. Prices are hitting record highs and are rising faster than income—an ultimately unsustainable trend.

Signs of the times

  • The Britney bubble has burst. Prices paid for paparazzi photos have fallen 31 per cent over the last two years, as interest in celebrity antics wanes, according to website The Daily Beast. Gone are the days of magazines shelling out $14 million for pics of the spawn of Brad and Angelina, as People did last year. With ad budgets slashed, and Britney Spears behaving herself, the interest just isn’t there.
  • The economy must be better—people have stopped eating soup. At the height of the financial crisis, Campbell Soup Co. was hailed as a recession-proof company because broke consumers had to eat something and soup was cheap. Guess they got sick of all that chicken noodle. In its latest quarter, the company said soup sales fell three  per cent. Don’t fret for Campbell. Earnings still jumped 17 per cent.
  • A new use for unsold houses is emerging—foreclosure raves. In cities like Atlanta, San Diego and Miami, partygoers have been converging on vacant homes, some of them mansions, for huge late-night bashes. Organizers first get a realtor to show them the house, then advertise the parties and charge admission.
  • The vampire squid is trying to make nice. Goldman Sachs, which earned that unflattering characterization in a recent Rolling Stone profile, finally realized maybe it’s bad to have 300 million people hate your guts. As the investment bank gets set to dole out billions in employee bonuses, angering Main Street America, it announced a US$500-million fund to help small businesses recover from the recession. Some context: that’s just three per cent of its bonus pool.

Latest intelligence

Canadian shoppers hit the stores in September, driving sales up one per cent to nearly $35 billion, the seventh gain in nine months. But the question is, was that enough to push Canada’s economy into positive territory in the third quarter, and deliver on the Bank of Canada’s promise of two per cent GDP growth?

“Whether it’s housing, auto sales or these retail sales figures, there is mounting evidence that the domestic side of Canada’s economy is in full recovery mode.”—Douglas Porter, deputy chief economist, BMO Capital Markets

“Despite the weak labour market conditions and sluggish economy, Canadian households continued to hold their side of the bargain.”
—Millan Mulraine, strategist, TD Securities

“September’s sharp pop higher is a strong positive to monthly GDP.”
Derek Holt, economist, Scotia Capital

“The promise of an economic revival in the third quarter was delivered upon not by factories but by consumers.”—Krishen Rangasamy, economist, CIBC World Markets

“Canadian consumption is being strongly supported by a wealth effect from surging home prices and rallying stock market.”—Grant Bishop, economist, TD Economics

“September will prove just barely enough for the economy to eke out a small quarterly gain in the third quarter.”—Paul Ferley, assistant chief economist, RBC Economics Research

The Week Ahead

THURSDAY NOVEMBER 26: Statistics Canada will report GDP
for the third quarter. Little if any growth is expected.
TUESDAY, DECEMBER 1: Vehicle sales data for the U.S. will be
released for the month of November. Sales are on pace to top
10 million vehicles this year.
TUESDAY, DECEMBER 1: The U.S. Bureau of Census will report
construction spending for October. Spending was up in September.

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