Since earlier this summer, I’ve been writing about my enthusiasm for the Canadian economy. Am I missing something?
The kids went back to school last week, with a healthy mix of confidence, excitement and absolute terror. This will surprise none of you who have watched a child enter a first- or third-grade classroom the morning after Labour Day. Some saunter, heads held high. Others bounce in anticipation. Still others cling to whoever is closest.
Between them, our two ran the gamut of emotions, all before the morning bell. By noon, Grace was braving her first lunchroom meal and Anthony was racing through the morning highlights with Mom and Dad so he could get back to his new playmates. There was reason for optimism.
Regular readers will know that I’ve been on a bit of an optimism binge this summer. In July I wrote that the worst is over for the Canadian economy, citing a Bank of Canada report that forecast rebounding gross domestic product growth, consumer spending and export trade. A week later I noted new research that showed small business owners are gaining confidence in the economy.
We can add another set of positive numbers to the list. Statistics Canada reported on Friday that the Canadian economy created 59,200 jobs last month, well above the 20,000 forecasters predicted and enough to lower the national unemployment rate to 7.1%.
Still, there is a view that Canada’s recovery is unsteady. The argument goes like this:
- The employment situation isn’t all it’s cracked up to be. First, the monthly jobs report is notoriously volatile. (The economy lost 40,000 jobs in July.) Second, the recent trend isn’t great. We’re averaging 12,000 additional jobs per month over the last two quarters. That’s less than half the prior six-month average of 29,000.
- Those global economic headwinds are still out there. Political risk is alive and well in the U.S. We’re in for an eventful period as Congress gears up for another debt limit fight, a Federal Reserve Chairman vote and a possible Syrian military strike. Washington seems poised to tamp down American consumer and business leader confidence, as it did with the sequestration cuts earlier this year. Add to that a slowdown in key emerging markets like China and a painfully slow turnaround in Europe. The world remains a scary place.
- Canadians are in too much debt for there to be a robust recovery. Sure, the household savings rate is back up above 5%, but the average Canadian home was saddled with $27,131 worth of debt (not including mortgage debt) in Q2, according to credit bureau TransUnion. As interest rates rise – which they’ve begun to do already — debt-carrying costs will increase and consumer spending will soften.
“We’ve kind of run out of steam,” said Pedro Antunes, director, national and provincial forecast at the Conference Board of Canada. I called him on Friday to see if he felt my optimism is premature.
Antunes told me that governments, business leaders and consumers all remain cautious across the country. That’ll continue in the short term. “We still do feel that consumers are stretched,” he said. “There are some pretty good income gains out there, but it’s not going to be driving a lot of growth going forward.”
Like me, though, Antunes sees a strengthening recovery. “Once we see less fiscal restraint in the U.S., we are going to see even stronger growth than we are seeing now,” he said. “The U.S. is still coming off very low levels. It hasn’t recovered from recession, really. Usually after a recession we see a very strong rate of growth to catch up, and we really haven’t caught up.”
As the U.S. economy gains momentum, Canadian exporters will benefit. But that’s not all. “It also means we’ll have a little more confidence on a global basis,” said Antunes. “That will drive up prospects across the developing world and hopefully Europe as well … Not only will we have our direct trade improving, I think prices for raw materials will hold up. Demand from especially the developing world will strengthen.”
My optimism — about both the economy and my children’s education — doesn’t come without a good deal of realism about short-term difficulties. (Starting Grade One was one of the toughest things I ever did.) But if you’ll forgive me repeating myself, I do believe the worst is behind us.
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