Friday, June 6, 2008

Recession confirmed in US; likely in Canada

Very good article in the Financial Post the other day that finally talks realistically about a recession in Canada (http://www.financialpost.com/story.html?id=552789). As you may know, this blog has been talking about this many times already. The question asked back in February was "did recession start here in February". With a negative December and now negative Q1, it appears that the financial media was sleeping!

The article mentions the negative Q1 and likely negative Q2 and mentions that it does not feel like a recession as it does in the US (consumption grew at 3.2% in Q1, down from 7.5%; real income grew at 3.7% vs 1.5% in the US) partly due to the fact that the GDP figures don't measure the high price of commodities directly in output.

I have no argument with the fact that it "feels" worse in the US. However, if the commodity markets and the strong loonie are keeping us relative strong, what happens if they turn? Despite the recent run up in crude oil, most commodities are already below their highs.

Relying on historically cyclical and volatile commodity prices to keep us going could be a dangerous strategy. We could in theory have positive GDP in the Q3 and Q4 and also have people "feeling" poorer if commodity markets implode...

Also, today's US unemployment rise to 5.5% (from 4.4% last year) should put any recession doubts to rest. Forget the positive GDP number for Q1 in the US. Expect it to be revised down...

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