Rebound in 2009

It may not feel this way for everyone but, by and large, Canadian families will finish 2008 in much better financial shape than families in many other parts of the world, including the United States. Indeed, the Canadian consumer almost single-handedly sustained the Canadian economy for much of the year, a function of employment and wage growth that surprised professional forecasters at every turn.

But as the new year approaches, the storm clouds that had been hovering on our horizon for much of 2008 are now directly overhead and threatening to soak us all.

The degree to which Canadian households might be impacted by the recession will be a function of the strength of the three pillars of a typical household's economic foundation: a job, a house, and some savings for the future and for retirement. Cracks appeared in all three pillars in 2008, some wider than others.

One of the pillars of a household's financial position, savings and investments, came under severe stress in 2008. At Dec. 15, the benchmark TSX Composite Index had fallen about 38 per cent since the same date a year earlier, the worst year since before the Second World War.

"I think there's probably a lot of great buying opportunities emerging in the stock market as a consequence of all this panic," Prime Minister Stephen Harper said in the middle of the October election campaign, a remark many commentators though might have been a bit unwise.

Harper's pronouncements on the economy, in fact, have swung about as wildly as the markets in the last several weeks. During the campaign, for example, Harper vowed several times that there would be no deficits on his watch nor would the country experience any reversal of economic growth.

"This country will not go into recession next year and will lead the G7 countries," Harper said on Oct. 10.

But barely two months later, Harper was not only conceding that Canada had gone into recession, he told a television interviewer that a depression might even be a possibility. Depressions are, fortunately, relatively rare economic events that often have, as one of their defining characteristics, a rapid and massive rise in the ranks of the unemployed. But Canada, at least at year's end, still had relatively stable employment outlook.

For most Canadian households, this is the most important pillar of financial security.

Canada's economy has done remarkably well when it comes to job creation in 2008, creating more than 129,000 net new jobs in the 12-month period ending in November. Certainly, there have been massive job losses in the manufacturing sector, but the losses there were picked up in other sectors. Wage growth was also strong through most of the year, remaining well above the rate of inflation and touching some record-highs in mid-year.

The United States, by contrast, has done poorly when it comes to jobs, losing more than two million jobs in the last twelve months.

But at the end of the year, the global crisis appeared to be catching up to Canada's labour market. Statistics Canada said that in November, the most recent month for which data is available, the Canadian economy shed 70,000 jobs. Through that month and into December, news of layoffs came fast and furious, not only in the beleaguered auto sector but across all regions and all sectors.

Finally, there is that other pillar of economic security, your home, which, for most Canadians, is the biggest asset and biggest investment any will make.

For most of the year, housing markets in Canada held up relatively well. But at the end of the year, some new disturbing data emerged. The Canadian Real Estate Association reported, in early December, that the average price of a home in Canada now stood at just over $280,000, a drop of just less than 10 per cent from the national average of $311,485 in November 2007. Here, there were some tremendous regional variations with the markets in Vancouver and Calgary taking particularly large hits while a market such as Ottawa's continued to show some growth.

Forecasters believe housing markets will remain slow through the first few months of 2009.

Of course, what gets everything moving in the right direction again is a growing economy and here the key indicator is GDP or gross domestic product.

Finance Minister Jim Flaherty finally admitted in mid-December what most private sector economists had been predicting for several weeks: Canada's economy in 2009 is going to shrink by about 0.4 per cent. Since every one percentage point of GDP is worth about $16 billion worth of activity, that's a lot of wealth we have now that we're not going to have at the end of next year.

If there's any heartening news in Flaherty's new revised forecast, though, it's this: The worst period for growth is ending right now in the fourth quarter of 2008. Finance believes the economy has contracted by almost two per cent in the three month period ending Dec. 31. (The actual numbers for the quarter won't be released until March 2.) It will shrink again, the department says, in the first two quarters of 2009.

But then things should get better, with economic growth for the quarter starting in July of about 1.7 per cent. And, if finance department officials are right, by the end of 2009, Canada's economy should be back to something approaching normal and healthy, with a growth forecast for the fourth quarter of 2009 of 2.2 per cent.

TAKING STOCK

Key indicators for the Canadian economy in 2008.

-38% The drop in the TSX Composite index for 12 months ending Dec. 15

129,000 The number of jobs created in the 12 months ending November 2008

6.3 The unemployment rate in November.

It was 5.9% 12 months earlier.

$280,880 The national average house price in November, which was 9.8 per cent lower than the average $311,485 in the same month last year

GDP Forecast

2008 Q4 -1.9%

2009 Q1 -1.7%

2009 Q2 -0.5

2009 Q3 1.7

2009 Q4 2.2

Source: Canadian Real Estate Association, Statistics Canada, Department of Finance

(Prepared by David Akin/Vancouver Sun)