Economy making progress, but recovery still in doubt

OTTAWA — The Canadian economy is slowly emerging from the worst recession in nearly three decades, suggests new economic data on bankruptcies, building permits and business activity.

OTTAWA — The Canadian economy is slowly emerging from the worst recession in nearly three decades, suggests new economic data on bankruptcies, building permits and business activity.

But fears that the rebound will be muted or even stall completely continue to worry economists and the stock market.

“I think what we’re seeing is financial markets getting more in tune with reality,” CIBC chief economist Avery Shenfeld said as the Toronto Stock Exchange continued its recent tumble.

“The market is right that the recovery is coming, but they had run too far ahead of the likely strength and timing of that recovery.”

The benchmark S&P/TSX composite index has bled more than 600 points over the last five sessions, including 183 points Tuesday.

The darkening mood is behind talk in the United States about another dose of government spending to restore confidence, even with the vast majority of the near-trillion-dollar stimulus still to be spent.

Canadian economic indicators have been stronger of late, if only barely, than those of the United States, which saw a disappointing fallback in jobs, auto sales and consumer confidence.

Three new Canadian indicators on Tuesday — bankruptcies, building permits and business activity — traced the recent pattern, showing signs of improvement while remaining well back from last year.

The most encouraging was a report that building permits surpassed the $5-billion mark in May for the first time since last October, possibly an early sign that federal infrastructure stimulus spending was beginning to be felt on the ground.

The most discouraging report was that 9,900 Canadians went bankrupt in May, a jump of 34.4 per cent from a year ago, although 9.5 per cent fewer than the previous month.

As well, the Ivey Purchasing Managers Index rose by more than 20 per cent in June to 58.2, an indication that business purchases were higher than the previous month, although still lower than last June when the index stood at 69.6.

“These are consistent with an economy moving towards a recovery but that is not there yet,” said Douglas Porter, deputy chief economist with BMO Capital Markets.

Given the sideways nature of the indicators, economists are pointing to Friday’s key jobs report from Statistics Canada as the clearest signal whether Canada is following its southern neighbour into a period of interrupted progress.

The consensus forecast is for a loss of another 35,000 jobs in June, following on the retreat of 42,000 in May.

But some economists believe the carnage could be worse, approaching 60,000 jobs, which would suggest that the economy is indeed taking longer to recover than many had hoped.

Last week, markets tumbled after the U.S. Labour Department calculated that 467,000 jobs had vanished last month, well above the 322,000 lost the previous month.

“That was important because we had seen a number of months where things were getting less bad, then suddenly they were more bad, so there really was a step back in the U.S.,” noted Porter.

A similar retreat in Canada would inject a note of caution about how quickly and how strongly — or more likely muted — the rebound will be when it finally emerges, likely later this year.

In two separate recent analyses, Toronto-based economic consultant Dale Orr and parliamentary budget officer Kevin Page cautioned that the ailing economy’s period of convalescence will indeed be long and bumpy.

Orr was particularly dour, saying that even with healthy growth rates of 3.5 per cent going forward, it will take Canadians more than five years to recoup all they have lost due to the recession.

Page’s prognosis was in a similar vein, cautioning the unemployment could rise above 10 per cent next year and could remain above eight per cent until at least 2014. Only a little more than a year ago, the jobless rate in Canada stood at 5.8 per cent.

The one recent indicator that has encouraged Porter is the surprisingly strong Toronto housing sales numbers for June, which rose 27 per cent from last year.

“That may be indicative of summer activity overall,” he speculated, “so it’s possible we could see a pleasant surprise (in jobs) instead of a nasty surprise like we saw in the U.S.”

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