Canada’s advantage stands out

Economy at a glance - Oct. 12, 2009
Recession has proven that the home is the foundation of the economy
ALEX CARRICK
Chief Economist, CanaData
The American experience with the recession has been much worse than the Canadian one because of a weaker residential construction market leading to a steeper slide in consumer spending. Consumption plays a big role in economic growth. The two graphs below show in dramatic fashion the ways that the U.S. and Canadian economies have taken different paths through this latest recession. Canada’s advantage stands out in the residential investment chart. In 11 out of the last 12 quarters, residential investment in Canada has performed better than in the U.S. – either growth versus decline or small decline versus large decline. There is a strong tie-in between the relatively stronger housing market in Canada and the better performance in consumer spending. In eight of the previous 12 quarters, Canadian consumer spending has outperformed U.S. consumer spending, on a quarter-to-quarter annualized basis. In three quarters, real (i.e. inflation-adjusted) consumer spending in the two countries has been about the same. In only one quarter (Q1 09) did the U.S. do better than Canada, and then only slightly. The weak U.S. residential market has devastated consumer confidence. The sub-prime mortgage mess — leading to foreclosures, a credit squeeze and home price plunges — has caused families south of the border to retrench in a major way. The weak demand for goods and services, many of which are for the home, has caused job losses leading to further crises of confidence. Canada’s experience of the downturn has been much less severe, except in some key resource areas (a worldwide phenomenon) and automaking (brought on by the bankruptcies of GM and Chrysler). Less-risky mortgages and lower consumer debt have meant that most Canadians aren’t worried about losing their homes. As a result, they are still able to indulge in their favourite pastime: spending their weekends at the mall. For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has a blog site. His lifestyle blog entries are at www.alexcarrick.com