The Canadian Economic Miracle

Posted by David Rosenberg - Gluskin Sheff

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Looking back to last year, it would have been inconceivable to be talking about a Canadian economic miracle, but that is exactly what we have on our hands today; a classic V-shaped recovery with a 5% real GDP growth performance in the fourth quarter — a pace that will likely be surpassed in Q1.  Unlike the nascent U.S. rebound, the Canadian bungee-jump has occurred with no arithmetic support from inventories and also with a lot less intervention in the form of fiscal stimulus.  The National Bureau of Economic Research (NBER) is still unsure of when (or whether) the recession ended south of the border, but Statistics Canada boldly told us a little more than a week ago that the domestic downturn was officially terminated back in the third quarter of last year. 

This begs the question as to what has been the principal factor underpinning this impressive Canadian economic revival, especially in relation to what is happening in the United States, where this goes down as the second weakest recovery in real final sales on record.  In the U.S., only the 2002 experience — recall the growth relapse in the second half of that year — was softer.

We can answer the question in one word: housing.  The housing sector is the quintessential leading indicator of the economy, and true to form, it caught fire before the overall economy did — after a brief, but sharp, turndown in the latter part of 2008 and into those dark opening months of 2009.  The U.S. market has stabilized at best, with the help of massive doses of government support, but in Canada, housing activity has absolutely been ripping.  

• Canadian housing starts in March were up 38% on a YoY basis and up a resounding 75% from the February 2009 trough.

• Real-estate sensitive retail sales have risen nearly 15% YoY as of February, the fastest pace in seven years.

• Existing home sales are up over 60% from the December 2008 bottom.

• On an annualized basis, real residential construction is up about 20% since the recession ended furniture up 14%, appliances up 9%, and financing/legal services up nearly 5%.  The spreading impact across domestic industries linked to the residential real estate market has been considerable.

• Construction employment has jumped 6% (or up 66k) from the July 2009 low.  Construction employment only represents a 7% share of the overall employment pie but has been responsible for nearly 40% of the aggregate increase in employment since the recession bottom.

….read pages 2-5 HERE