Title: Economic recovery is in the air            

Sub-title: After extended sluggishness, experts say things are picking up in Canada. But will job creation keep up?


Efforts by the world’s biggest governments and central banks to boost spending and push down interest rates appear to be having their desired effect. According to the Bank of Canada, there have been increasing signs that global economic activity, which had been in a downward spiral, has been nearing a trough. That’s good news for our economy too.


Last week, Canada’s central bank raised its GDP growth forecasts, (including those for the current quarter to +1.3 percent) - a de facto prediction that the recession here is ending. “Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand,” Mark Carney, the central bank’s governor, told reporters last week. “We now expect that the Canadian economy will contract by 2.3 percent this year and then grow by 3.0 percent in 2010 and 3.5 percent in 2011.”


If the Bank of Canada’s forecasts materialize, this would represent great news for Canada, which has been hit by crippling jobs losses, including 286,000 shed posts during the first half of this year alone. The big question is to what degree expected economic growth will put unemployed Canadians back to work.


Positive signs in the housing market

One area already generating encouraging results and which would benefit even further from sustained job creation is Canada’s housing sector. According to the Canadian Real Estate Association 147,351 homes were sold during the second quarter of this year via its Multiple Listing Service (MLS) an increase of 1.4 percent relative to the second quarter of last year. That total - the fourth highest on record - represented the first year over year quarterly increase since the last quarter of 2007.


Increased sales volumes of existing homes weren’t the only positives in the real estate market. The average price of houses and condos sold during the quarter increased too, to $318,696 - the highest quarterly total ever. On a monthly basis, the strength was even more impressive. According to CREA, the average selling price of homes traded in their sample group during June 2009 was $326,613,


It comes as no big surprise then that builders - sensing the increased housing demand - got out their proverbial shovels in June and started digging new foundations. According to the Canada Mortgage Housing Corporation, housing starts rose to 140,700 units during the month on a seasonally adjusted basis, up 7.98 percent from the May total.


Recent housing sector relative strength is not the only positive for the Canadian economy. For example the internal data underlying those job losses mentioned earlier, are far more encouraging than the aggregate numbers themselves. That’s because of the 286,000 jobs lost to the Canadian economy during the first half the year, fully 273,000 were shed during the first quarter; only 13,000 jobs were shed during the second – a clear signal that things are bottoming out.


Recovery yes; but how strong and how sustained?

On the other hand there are a lot of “ifs” underlying the Bank of Canada’s rosy economic forecasts. One problem says Avery Shenfeld, an economist at CIBC World Markets is that “…for many Canadians, it’s not a recovery until they start getting their jobs back and on that score it will be a long wait. Even if the GDP bounce in the next couple of quarters is larger than expected, there are many impediments to getting trend growth back to the steady pace that will lower the unemployment rate.”


One big reason for this is that companies generally take their time before hiring back laid off workers. On top of that, Canada’s labour force is growing, which means that even when the country’s GDP gets back to pre-recession levels and even after all of those laid off worker are hired back, jobs will still have to be created for those new entrants into the workforce.


Another challenge is that much of the central bank’s projected economic growth implies continued strong exports to the United States. While much of the news from Canada’s largest trading partner is good, - such as fourth consecutive month of increases during May in the country’s Case-Shiller housing price index, coupled with reports of stronger than expected earnings at several major U.SW. corporations, - recovery prospects there remain fragile.


For example early last week, the US Conference Board reported that its consumer confidence index fell to 46.6 in July, down 2.7 points from the month before. According to Benoit Durocher, an economist at Desjardins Economic Studies, this slight second consecutive monthly pullback, signals an important point” “(They) remind us that the US economic recovery will be slow and gradual.”


Canadians ought those cautionary words to heart - because the effects of events down south almost always eventually flow up here too.


Peter Diekmeyer is Bankrate.ca’s economics columnist.






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