Made-in-Canada recession: retail sales plunge shows problems not all from afar

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OTTAWA - No longer can Canadians point the finger at the global downturn as the sole source of their economic woe - recession is now also a made-in-Canada problem.

OTTAWA - No longer can Canadians point the finger at the global downturn as the sole source of their economic woe - recession is now also a made-in-Canada problem.
New figures from Statistics Canada show the domestic economy took a beating in December, with retail sales plunging a Scrooge-like 5.4 per cent, the largest such fall in 15 years as consumers stayed away from stores - especially car dealerships - during the traditional high-spending month.
Until recently, most of the Canada's economic troubles had been placed on the doorstep of collapsing export markets for Canadian products, particularly autos and oil.
But the startling retail numbers show the domestic economy is equally in trouble.
''We can't just point our finger at the U.S. and the rest of the world and say, 'There's our problem,''' noted economist Douglas Porter of BMO Capital Markets.
''We've also seen a deep drop in domestic indicators as well, like housing and now consumer spending.''
The number may also go a long way toward dispelling the notion that Canada's economy is far healthier than that of the U.S., the so-called epicentre of the global crisis.
Economists are now unanimous in predicting Canada's gross domestic product will come in weaker than America's for all of 2008 when the fourth-quarter gross domestic product figures are released next Monday.
They are predicting fourth-quarter GDP in Canada shrank between three and four per cent, about the same as the 3.8 per cent contraction south of the border and far worse than the Bank of Canada's recent prediction of negative 2.3 per cent growth.
The two economies don't appear to be far apart for 2009, either.
A new survey of U.S. economists forecasts the U.S. economy will shrink a further 1.9 per cent this year, within the range of the more pessimistic projections for the Canadian economy.
''In terms of GDP growth, Canada did worse (last year), but in terms of employment growth we surpassed the U.S.,'' said Paul Ferley, assistant chief economist with the Royal Bank. He noted, however, that the loss of 129,000 jobs in January points to a worsening jobs picture in Canada as well.
Ferley and many other economists still see Canada doing slightly better this year, largely because of stronger financial markets and expectations that commodity prices, particularly that of oil, will recover somewhat.
But Merrill Lynch Canada chief economist David Wolf says those advantages may be overestimated, noting that although the crisis began in the U.S., countries such as Japan are already far deeper in the hole. The United States, he says, is further ahead of Canada in making adjustments to the recession and has taken more aggressive stimulus measures.
''Canada's financial markets are clearly in better shape but it's not going to matter much if no one wants to borrow or lend,'' Wolf said.
In a speech in Toronto, Bank of Canada senior deputy governor Paul Jenkins said getting credit markets working is the key to returning economies back to growth.
''Stabilization of the global financial system is a precondition for economic recovery globally and in Canada,'' he said in notes of his speech released by the central bank.
Later in the day, the central bank took the extraordinary step of agreeing to accept riskier securities like corporate bonds as collateral in an effort to make it easier for cash-strapped businesses to obtain loans.
The next move by the bank to spur lending will likely come on March 3, when many economists predict governor Mark Carney will slash short-term interest rates another half-point, bringing the bank's overnight rate to an historic 0.5 per cent.
If there was any good news on the horizon, it came from a Harris-Decima poll which showed consumer confidence in Canada reviving slightly.
The January poll showed 27 per cent of respondents expecting they'll be better off a year from now, an increase from the 20 per cent who were optimistic in December.
But if there is growing consumer confidence, it hasn't translated into behaviour yet and for good reasons, said Porter.
''There's no question the actual job losses we've seen and the actual wealth hit we've seen from the decline in equity markets is playing a role,'' he said. ''It's more than just a confidence matter.''
The retail sales decline in December was widespread, although the automotive sector suffered the most with sales crashing 12.7 per cent.
In non-automotive retailing, the largest decline in December was in building and outdoor home supplies, where retail sales fell 5.6 per cent.
Significant monthly decreases were also registered in sectors traditionally associated with holiday shopping. Sales in the clothing and accessories stores fell 3.7 per cent, furniture, home furnishings and electronics stores and miscellaneous retailers dropped two per cent, general merchandise stores fell 0.4 per cent.

Organizations: Statistics Canada, Bank of Canada, BMO Capital Markets Merrill Lynch Canada

Geographic location: Canada, United States, OTTAWA Japan Toronto

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  • Dannie
    January 18, 2010 - 11:13

    It is no wonder that retail sales dropped it can be blamed on the news media--they are all spouting gloom and doom every day. No wonder people are now saving their money instead of spending it. Shame on all news media.