Vancouver Sun May 3, 2010
Economists assure us that an economic recovery is underway and have the figures to prove it. Most of the major indicators -- gross domestic product, retail sales, merchandise exports, corporate profits, manufacturing, wholesale trade and residential construction -- are up. But the latest reading of consumer confidence suggests Canadians aren't convinced.
In fact, the Conference Board of Canada's consumer confidence index plunged in April, with the number of people saying their financial situation was worse now than six months ago increasing by 4.7 points, to 24.2%. That level is little changed from the depths of the recession.
In B.C., the euphoria of the 2010 Winter Olympic Games quickly dissipated and the 26-point jump in confidence in March turned into a nosedive of 28 points in April.
The disparity between statistics and sentiment is striking.
The economy is growing. The Bank of Canada recently raised its forecast for GDP growth to 3.7% this year. And jobs are being created. Employment was up by 18,000 in March, bringing total gains since July 2009 to 176,000. Yet the confidence survey found that the number who thought there would be more jobs in their communities six months from now declined, while the number who expected fewer jobs rose.
Why the gloom? For a start, the unemployment rate remains unchanged, at 8.2%, and employment gains for youth and men aged 25 to 54 were not significant; most of the gains were among women aged 25 to 54 and men over 55. Talk of recovery is moot for those whose jobs were wiped out in the recession and haven't come back.
The threat of higher interest rates is also putting a damper on consumers' enthusiasm. In advance of an anticipated quarter-to half-point hike in the key overnight rate by the central bank in June, mortgage rates are already rising rapidly and homeowners due to renew or holding variable-rate mortgages face higher housing costs. Indeed, the high level of consumer debt, including mortgage debt, is seen by many economic pundits as a major risk to the recovery.
An even darker cloud on the global economy is sovereign debt. Greece's debt has been downgraded by Standard & Poor's to junk status, a move that sank oil prices, rattled stock markets and sliced a penny from the value of the Canadian dollar as investors fled to the relative safety of the U.S. dollar.
Portugal's credit rating has also been cut a notch, and more than a few observers are worried that the European debt crisis could spiral out of control.
Most developed countries are now running budget deficits, and their governments are counting on robust economic growth to balance the books.
And it's not only consumers who are concerned the recovery isn't all it's cracked up to be.
Export Development Canada, the Crown agency that supports Canadian exporters, said in a report this week that recovery remains elusive and still depends on government stimulus spending. Though merchandise exports were up in April, they are 23% below July 2008's peak.
"What we have going for us right now might not be enough to keep us from a possible dip in growth in the second half of this year," said Peter Hall, EDC's chief economist.
In short, there's no doubt that the technical recession is over. Whether the recovery is sustainable is the big, unanswerable question.
lawlessbrown.com
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