The economic numbers Statistics Canada reported this week have everyone talking about the country's sharp drop into recession although, technically speaking, it's premature to be using the R word.
A recession is commonly defined as two consecutive quarters of economic contraction. Canada has had only one. Gross domestic product shrank by 0.8 per cent in the fourth quarter of 2008 but there was growth, albeit not much, in the second and third quarters.
It seems clear that GDP will decline in the first quarter of 2009, making the recession official, but that won't be confirmed until the figures are released, probably in May.
The sudden and severe reversal in Canada's economic fortunes has raised speculation that the recession will be short, with most of the pain felt up front. Bank of Canada governor Mark Carney is convinced that low interest rates and the billions of dollars of government stimulus spending will trigger a rebound in the second half of this year.
Given that consumer spending accounts for about two-thirds of the Canadian economy, it will be largely up to buyers and borrowers to make Carney's prediction come true.
However, consumers face a barrage of media messages warning them to cut spending, reduce debt, increase savings and batten down the hatches to brace for the deluge. And we've been following that advice.
The personal savings rate climbed to 4.7 per cent in the fourth quarter of 2008 from 1.9 per cent in the same quarter a year earlier, while personal expenditure on consumer goods and services fell 0.8 percentage points in the fourth quarter, slowing spending growth to 3.0 per cent for the year, compared with 4.5 per cent in 2007.
So Canadians have cut back spending even though personal disposable income rose -- that's right, rose -- six per cent last year.
It is true that the economic slump is taking a toll on employment. The Canadian unemployment rate jumped to 7.2 per cent in January from 6.6 per cent in December. In British Columbia, the rate increased to 6.1 per cent from 5.3 per cent.
Distressing as these numbers are, they need to be seen in perspective. If 6.1 per cent are unemployed, 93.9 per cent must be working, factoring out the participation rate. Here in B.C., for example, out of a labour force of 2,415,100, 2,267,600 are still gainfully employed and drawing a paycheque that may well be bigger than it was last year.
With interest rates at historic lows and falling prices for many goods and services, it's a buyer's market. In Britain, harder hit than Canada by economic upheaval and where 3.3 million people are expected to be unemployed in 2010, more than 20 per cent of people surveyed said they were comfortable and confident and felt their finances were not adversely affected by the ailing economy. Some said they were better off, and had seen their standard of living improve as prices fell and their mortgage payments were reduced.
In Canada, most banks have reset their prime rates at 2.5 per cent, following the Bank of Canada's half-point cut in its key overnight lending rate, putting the official bank rate at 0.75 per cent. Homeowners with variable rate mortgages should see the benefit immediately, with many now borrowing near the rate of inflation.
Consumers find themselves in an enviable position, giving them a rare upper hand to negotiate with retailers and service providers as businesses compete to win and retain customers. Travel deals abound to try to lure reluctant vacationers to take that long-postponed trip at discount prices.
What's needed to unleash consumer spending is confidence. That's why governments around the world are spending heavily on stimulus programs, shoring up financial institutions and using monetary policy and other measures to make money cheap and available.
There's no denying that the economy is in a slump, but there is a silver lining: It's a bonanza for buyers.
Poll question: Do you feel confident enough about your economic prospects to go out and spend? Answer Yes or No at vancouversun.com/opinion
Well, that's rather decisive. Nearly all of you -- 95.74 per cent -- said you wouldn't go to a payday loan centre to borrow money in an emergency, according to Tuesday's Sun Opinion web poll. The remaining 4.26 per cent of respondents said they would.
© Copyright (c) The Vancouver Sun
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