Backruptcies up, but worse may be over

The number of Canadians tossed into bankruptcy by the economic downturn rose sharply in May, yet a rebound in construction and higher levels of business spending suggest that the darkest hour of the recession has passed, economists say.

It may be cold comfort for those thrown into the ranks of the insolvent but the year-over-year surge of 34.4 per cent in personal bankruptcies in May is far below levels recorded in previous recessions.

Moreover, while consumer bankruptcies have risen, business bankruptcies are on the decline, falling about 16 per cent from a year ago.

"They're still falling, they're not rising, and yet we are in the midst of the worst recession since 1982," said Benjamin Tal, senior economist at CIBC World Markets.

"It's the first time in any recession that has happened.

"The main reason is that we are seeing major pre-emptive cost-cutting by Canadian companies. So there is a link between the increase in consumer bankruptcies and the decline in business bankruptcies -- basically companies laying off people," Tal said.

Still, the impact on consumers is far less than in the 1991 recession, when credit defaults were rising by 45 per cent a year.

Canada has women to thank for that, said Tal, who credited their increased presence in the workforce for helping cushion the blow for many families facing difficulties.

At the same time, Canadians can thank record-low mortgage rates for the healing real-estate sector.

Royal LePage said yesterday it had upgraded its housing-market outlook for the rest of 2009.

As well, Statistics Canada reported a sudden advance in building permits issued in May. While volatile, building permits are seen as a forward-looking indicator of economically important construction activity.

While the gain in building permits surpassed analysts' expectations, so did another key measure of economic activity -- the Ivey purchasing managers' index.

The index surged to 58.2 in June from 48.4 in May. Economists had expected a reading of 50.3 in June.

Tal said the worst of the recession is over.

However, Doug Porter, deputy chief economist at BMO Capital Markets, cautioned: "I'm concerned though that this little burst of activity . . . may not be sustainable if we don't have a broader economic recovery to carry the day.

"We need the U.S. economy to stop contracting."

(Source: Vancouver Province)