I’ve always believed that Canada is a nation of optimists. Now I know it for sure. For all the talk of the dangers of an “adverse feedback loop,” where consumers collectively get depressed about the wilting economy and make things worse by spending less, the numbers show that Canadians may already be spending our way out of this mess.
Earlier this week, Statistics Canada released a report showing that Canada’s real GDP increased by 0.1 per cent in June, the first monthly increase since July of last year. It was tentative cause for celebration, and it was interesting to see what was fuelling that uptick. It wasn’t manufacturing, construction, mining or anything so fundamental. Apart from the rising price of oil, Canada’s baby steps toward a recovery seem largely due to—surprise!—a bit of a consumer spending spree.
And we’re not talking about consumers switching back to brand-name margarine here, we’re talking about spending on big-ticket items like houses and cars. In June the Teranet-National Bank House Price Index recorded a surge in unit home sales. Meanwhile, auto purchases have been rocketing up, with a stunning 19 per cent increase in the second quarter over the first.
In that same quarter, however, Canada’s export sector chalked up its worst performance on record. It was so bad, it likely means that Canada’s economy is undergoing a permanent shift away from manufacturing. As TD Economics noted in a recent special report, “The global recession likely hastened some structural economic changes that were already under way—such as the shrinking of manufacturing in developed economies.” If TD’s right, that means many of those manufacturing jobs aren’t coming back, ever.
Given that grim news, why are Canadians spending again? Because our country is less and less dependent on making stuff. Manufacturing, as a share of our total GDP, has declined from almost 25 per cent in the 1960s, to less than 15 per cent today.
If you work in a factory, that’s terrible news. But for the country as a whole, it’s probably good. As TD’s economists write, “The manufacturing shift under way is positive for global potential output in the long run, even though the frictions created in the short term could be detrimental.” So the recession is helping by nudging us along in the direction we need to go anyway. See? The recession has a silver lining after all. Maybe you should celebrate with a new car.
GRAPH OF THE WEEK: House prices are rising again
On a month-over-month basis, the U.S. has seen house prices declining since 2006, while Canada’s have been falling for only a year. Both countries saw a big spike lately, though. Will it last? It likely depends on whether interest rates rise.
THE GOOD NEWS
Homes sweet homes
Another week, another round of positive signs from America’s housing sector. New home sales beat expectations and rose 9.6 per cent in July from a month earlier. That works out to 433,000 new homes sold on an annual basis, though that’s far below the 50-year average. The resurgence in sales will be tested in December, when the US$8,000 new homebuyer federal tax credit expires.
(Slightly) bigger paycheques
Canada is still suffering from ongoing job losses, but those who are still working are bringing home larger paycheques. The average weekly earnings of payroll employees rose to $823.23 in June, up 1.8 per cent from a year earlier. The gains weren’t spread evenly, though. Wages in P.E.I. and Newfoundland rose the most, while Ontario saw the smallest gain.
Expansion-ISM
A big story during this recession has been the collapse of America’s manufacturing sector. Finally, there’s some hope: the ISM manufacturing index climbed four points to 52.9 in August. It’s the first time the index has climbed higher than 50 (which implies expansion) since January 2008. The question now is whether the sector can keep it up, without stimulus from the “cash for clunkers” program.
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