OTTAWA – Evidence is mounting that the recession in Canada is over, making it one of the shortest although deepest since the Second World War.
Statistics Canada reported Wednesday that the composite leading index – a broad measure of economic indicators – rose for the first time since all the difficulties began last August, ticking up 0.4 per cent in July.
And in a separate report, the Canadian Imperial Bank of Commerce notes that despite rising unemployment, the average duration of unemployment-the time it takes to find a new job – remains at a relatively brief 15 weeks, just one week higher than the pre-recession level.
That is far better than the average 20 weeks duration experienced in 1991 during a comparable point in the downturn.
“There are currently one million Canadians (about two thirds of the jobless) who have been unemployed for less than three months,” said CIBC economist Benjamin Tal.
“The exit rate from unemployment … suggests that the newly unemployed are more likely to find a job or start their own businesses within the coming few months than they were through much of the 1990s.”
Most economic forecasters have predicted Canada’s economy would stop declining during the current third quarter, which ends Sept. 30, with some – including the Bank of Canada – predicting a positive reading for the period.
In the last two days, both the International Monetary Fund and the Organization for Economic Co-operation and Development have also said that the rapid deterioration in global economies is notably slowing, with the IMF saying growth had already begun. Neither of the international organizations gave a specific breakdown for Canada.
Although most of the world has been in recession longer, such a scenario would mean Canada’s slump lasted a total of three quarters, a relatively short period.
The leading indicators improvement is consistent with an economy that has stabilized and may indeed have begun to grow, although that won’t be known with any certainty until the July gross domestic product numbers are released, sometime next month or in early October.
“It’s tentative evidence that suggests the downturn is over and we’re heading higher,” said economist Sal Guatieri of BMO Capital Markets.
“But we have a pretty soft recovery,” he adds.
The Bank of Canada is projecting growth to average three per cent next year, although that is considerably rosier than the private sector consensus of about 2.3 per cent.
Guatieri said key a factor that will keep Canada’s economy from rebounding stronger is continued weakness in the U.S. economy, which is still hamstrung by high household debt, floor-low housing starts and prices, tight money markets and low business investment.
“All that points to soft exports for Canadian firms,” he said. “That’s going to limit our economy’s growth potential.”
And the CIBC points out that Canada’s labour market has a ways to go before it stabilizes. Although workers may be finding it easier than expected to find replacement jobs, the bank says the unemployment rate will rise to nine per cent from the current 8.6 per cent in the next few months.
Since last October, when the economy began its rapid descent, 414,000 jobs have vanished in Canada.
Meanwhile, the July composite index suggests that better, if not great, times lie ahead.
Six of 10 components in the index expanded, the most since May 2008, Statistics Canada reported.
Just four months earlier, the money supply was the only component that increased and the overall index fell 1.4 per cent, its fastest rate of decline in the current downturn.
Housing and the stock market continued to post the largest gains, although the stock market leapfrogged ahead of housing with a 5.7 per cent increase.
The upturn in household spending spread from housing to other durable goods, which posted their first advance in over a year.
Not all sectors of household spending were upbeat, however. Furniture and appliance sales continued to trend down, while personal services pulled down services employment.
The leading indicator for the United States also continued to improve, rising 0.4 per cent for the first back-to-back gain in about two years.
The improvement in the U.S. economy was not reflected in Canada’s manufacturing sector, where new orders continued to decline, falling nearly six per cent.
