8 June 2009

Economic crisis “turning the corner”

The following is excerpted from the 6 June 2009 edition of “globeandmail.com”.

The tide of job losses washing across North America is showing signs of ebbing, feeding hope that the worst of the recession is over.

On the surface, the employment market still appears bleak. Reports yesterday showed the Canadian unemployment rate reached an 11-year high of 8.4 per cent, in large part because of layoffs in the auto sector, while the U.S. jobless rate soared to the worst level in 26 years at 9.4 per cent.

Yet investors and economists are looking past those grim tallies and focusing on subtle details that suggest the nadir of the economic crisis has passed. The key signals include a dramatic and unexpected slowdown in the pace of U.S. job losses, strength in the service side of the Canadian job market and an increase in the number of people looking for work that reveals growing onfidence that sending out résumés isn't a lost cause….

In Canada, where 42,000 jobs disappeared, most provinces actually showed gains. Only manufacturing-dependant Ontario registered a significant decline, losing almost 60,000 positions; the provincial unemployment rate is now 9.4 per cent, a 15-year high….

Yesterday, optimistic investors moved money out of the safe haven of bonds and Canadian stocks rose yet again.

The question now is whether these indicators presage a robust rebound in the North American economy, or whether they just mark the end of a period of intense upheaval that will be followed by a slow, choppy and uncertain recovery.

Conventional wisdom is that the economy is usually well on its way to renewed health before the improvement shows up in job numbers….

If it's too soon to proclaim the U.S. recession over, it's likely premature to herald an end to Canada's downturn, given that this country usually lags its southern neighbour on the way down and on the way up….

Canada's export sector faces the additional problem of a soaring dollar, which makes exports less profitable and life miserable for manufacturers. The currency has jumped almost 10 U.S. cents in the past two months to close at 90 U.S. cents, prompting the Bank of Canada to voice concern this week.

The biggest hurdle is still consumer spending, with citizens cutting back to cope with their losses in the job, housing and stock markets. That's unlikely to change quickly, as many have a long way to go to reduce debt and rebuild savings….