8 April 2009

Which road do we follow?

The following article is excerpted from the 8 April 2009 edition of the “Toronto Star”.

As Canadians hunker down and wait out the recession, economists are already sifting through the avalanche of bad news for early glimmers of hope.

Some are looking for signs of life in the U.S. housing market, where the roots of the global crisis lie, or in recent stock market rallies, which are often thought to foreshadow economic recovery.

But other observers are keeping an eye on less obvious places, like global shipping indices and cardboard manufacturing plants.

The one thing that people agree on is that predicting a recovery is not an exact science. …

Despite dire forecasts for the global economy this year, there are indications the "rate of decay is already slowing," Hodgson said [Mr. Hodgson is chief economist at the Conference Board of Canada.] He sees signs of hope in the U.S. housing sector….

Complicating matters is the fact that different measures turn around at different times, said Peter Dungan, a professor of business economics at the Rotman School of Management at the University of Toronto. For example, gross domestic product usually starts to improve before employment, which is a lagging indicator. As a result, "there is no one bottom" but "a succession of bottoms."

Signs of recovery may be different in Canada than elsewhere, Dungan added. "If I'm looking for a bottom for Canada, the first thing I'll look for in this downturn ... is that the United States has got a bottom," he said. …

For some people, that means seeking answers in the Baltic Dry Index, a measure of global shipping that recently slid to a two-month low.

Others keep an eye on cardboard manufacturing, Dungan said. Most companies package and ship their products in cardboard boxes, so when orders pick up "it means that stuff is getting into the production line again."

A more closely watched leading indicator in the U.S. is an index of manufacturing put out by the Institute for Supply Management. It has been showing that the rate of contraction in the U.S. manufacturing sector is slowing. …