Job losses expected to mount, but silver lining shows in economy’s black cloud

OTTAWA — Just as the Canadian and United States economies appear at their weakest in years, many private sector economists say they spot the beginnings of a silver lining peaking through the gloom.
The bad news is far from over and this Friday both countries are predicted to report another month of significant job losses for December — an estimated 20,000 to 30,000 in Canada and about 500,000 in the United States — following outsized losses in November.

As well, Statistics Canada will be issuing a report on building intentions for November that is again expected to show that Canada’s previously hot housing market has cooled dramatically.
But while the rear-mirror numbers are bleak, economists say there’s reason to believe that the economy may hit bottom during the winter and start a slow but steady rebound shortly afterwards.
“I’m really quite optimistic that growth will happen by the third quarter,” said Dale Orr of IHS-Global Insight consulting and forecasting firm. “It won’t be great growth, but it will be growth.”
Others see a hint of growth as early as the second quarter, the April-June period.
One heartening indicator is the stock markets, which after free-falling through much of September, October and November, have shown surprising stability and modest growth in the past two weeks.
The Toronto Stock Exchange has regained about 12 per cent of its value since Dec. 23, closing Monday at 9,285.5.
Royal Bank economist Paul Ferley says he was particularly encouraged with Friday’s 250-point bounce in both Toronto and New York amid a grim manufacturing report showing factory activity in the U.S. sinking to a 28-year low.
“The reaction of the financial markets was, ‘We know the fourth quarter (2008) is going to be bad, but we are counting on things improving in six months,’ ” he explained.
Stock markets are usually seen as predictors of future rather than present economic conditions, he noted.
Other factors are pointing to a resumption in growth in the second half of 2009, say economists, including extremely low interest rates, favourable exchange rates as a result of the weaker loonie and cheap oil, which lowers production costs and leaves more money in consumers’ pockets.
A critical factor, they add, is that both the U.S. and Canada are expected to put in place massive stimulus packages at the end of January as Barack Obama officially takes office on Jan. 20 and Finance Minister Jim Flaherty tables a budget on Jan. 27.
News reports put the U.S. stimulus at around US$775 billion over two years, including over US$300 billion in business and personal income tax cuts.
That represents about 2.5 per cent of the U.S. economy and dwarfs about US$150 billion in stimulus introduced by George W. Bush last spring.
Meanwhile, Ottawa’s contribution is expected to be in the $15-billion ballpark for one year, representing one per cent of the country’s gross domestic product.
“Governments are going to start spending and that’s going to be a big part of the momentum for the economy in the second half of the year,” said Avery Shenfeld, a senior economist with CIBC.
“The general understanding in Washington and increasingly in Ottawa is that it will take a major effort” to reverse the slowdown.
But most economists no longer doubt that governments will spend — in the U.S. because Obama believes it is necessary, and in Canada for the added reason that the opposition parties have warned they will topple the Harper minority if it does not act decisively.