Blogs & Comment

It's all about confidence

There are plenty of factors that will determine whether or not this recession is turning around, but one of the more important indicators for economists, and especially politicians, is consumer confidence. Basically, if consumers think things are getting better they’ll start spending, they might invest and, perhaps most importantly, that gut-wrenching panic feeling many of us have experienced over the last few months will subside.
So, it’s no surprise that Barack Obama continues to take to the airwaves with his positive, but realistic, economic pitch. (Harper should be doing this as well, but alas…) At around noon, Obama spoke at Georgetown University where he said that the stimulus package is starting to work and that he sees signs of “economic progress.”
He went on to outline what his government has done, saying the “Recovery Act, the bank capitalization program, the housing plan, the strengthening of the non-bank credit market, the auto plan and our work at the G20 have been necessary pieces of the recovery puzzle.”
But, unlike some other world leaders (Harper), Obama is careful to keep things in perspective.

(This does) not mean that hard times are over 2009 will continue to be a difficult year for America’s economy. … The severity of this recession will cause more job loss, more foreclosures and more pain before it ends.

Federal Reserve chairman Ben Bernanke also gave a cautiously optimistic speech today. In his remarks, he said that the U.S. economy has “seen tentative signs that the sharp decline in economic activity may be slowing,” citing improving home sales, home building and consumer spending, and new motor vehicles data. “A levelling out of economic activity is the first step toward recovery,” he remarked.
I’ve said this before, but it’s always worth noting again, that although Obama’s talking about the American economy, Canada’s financial future won’t rebound until our southern neighbours see progress. What Obama says also affects our own consumer confidence, so it’s paramount that we keep tabs on the U.S. economy, as well as our own.
On that point, it’s interesting to note that one of Canada’s leading economists is much less optimistic than Obama and Bernanke.
Avery Shenfeld, chief economist at CIBC World Markets (he took over from Jeff Rubin a few weeks ago), writes in a report that Canada’s recovery won’t happen for some time, partly due to America’s sluggish turnaround.

March’s horrible job numbers and onerous debt levels suggest U.S. consumers a key driver of past recoveries continues to face downward headwinds. Aggressive fiscal stimulus will help in some countries, but that will take time.

He also thinks the S&P/TSX Composite Index will drop further, settling at 9,500 points at the end of 2009 (and bouncing up to 10,500 at the end of 2010), while Canada’s real GDP will decline by 2.7% this year.
But what about the recent rally? Doesn’t that signal that the recession is on the mend? Not according to Shenfeld.

Tech stocks and oil shares spearheaded the TSX’s late-1990s and early twenty-first century rallies, accounting for 73% and 43% of the market’s trough-to-peak climb respectively. The lack of an obvious, heavy-duty market driver suggests the power of any upcoming rebound may not match those two.

What’s Harper’s take on all this? The last economic-related speech he gave was last Wednesday, when he said “I gotta tell you that at the G20 we are way ahead of a lot of other countries. The level of advanced work weve done and the level of co-operation between various levels of government in this country is, I think, way ahead of most other countries in the world.”
That may (or may not) be true, but taking Shenfeld’s comments and Obama’s sobering assessment on America’s economy into account, it’s clear that Canada is still a long way off from regaining its confidence.