Much talk this week likely spurred on by Mark Carney and his proclamation that the recession is over.  Many clients and business partners have asked me whether this can be true or if he has another agenda.  Certainly the contrarians out there like Garth Turner and his blog dogs have taken particular exception to Mr. Carney’s words.

Today I read an economic summary from Avery Shenfeld which I thought was interesting and topical to this ongoing debate as to whether we are in a recovery.

He essentially believes that whether we are in a recovery or not depends on who you are.  For instance if you are a stock market investor then the recovery is when you are starting to get your money back, and that happened essentially in March.  With typical corrections obviously still to come the investor will still see gains continue for some time.  This makes sense from another perspective as historically stock markets are a leading indicator of both entering and exiting a recession.

However, if you are an economist, and this is where Mr. Carney is, then you will not call a recovery until positive GDP growth starts to happen, and not just for one quarter but that there is a trend.  In the US it is largely accepted that we will cross that line this summer.  Before the contrarians out there jump on this saying it is impossible to see growth absent of any real increase in demand, you must factor in that the first half of this year so massive cuts to production, which resulted in significant depleted inventories.  Even with marginal demand increase there will be marginal positive growth.  Canada will see growth then as US company ramp up stocking the shelves and warehouses then Canadian exporters will see their order basket fill up.

Finally, according to Shenfeld the average Joe Canadian will not declare we are in a recovery until they start getting their jobs back. Shenfeld then goes on to predict that this is a longer road then we would like.  Even if GDP growth bounces back as we predicted above.  He contends that US and Canadian consumers are still licking their wounds from earlier wealth losses and will take some time to unlock their wallets.  As well businesses are horading cash instead of buying equipment etc.

Although I agree with Shenfeld technically, I disagree that consumers, as a whole, will take longer to get out and feel confident again.  Employment participation, especially in Alberta where it tops the nation, is still very high and even if unemployment sadly tops 9% nationally there is still a significant number of people employed.  Secondly, as Avery’s colleague Benjamin Tal pointed out in his recent road show across the country in this nasty recession we saw an interesting but significant difference from any previous recession and that is the number of business bankruptcies were barely a blip and the significant number of women in the workforce.

His theory was that in past recessions unemployment was more damaging as employers “went out of business” in this recession most just were “laid off”.  Therefore the hypotheses suggests that it will be easier for businesses to callback their employees then it would be to start the business all over again.

The theory behind more women in the workforce this time around was that in many situations when one spouse lost their job the other was still working, which although difficult made it manageable for many people to weather the storm, and thus will make it quicker for them to rebound.

There is a silver lining in Shenfelds theory if you want to believe it.  If the recovery takes longer to grab hold of the average Joe, then count on more government stimulus to prod them, and for certain a delay in interest rate hikes from the bank of Canada.  Mr. Carney can NOT hike rates until the average Canadian is out spending again.  This bodes well for the real estate market, and particularly in Alberta.  Why?  because of the blessing in Western Canada of natural resources which will be the number one demand item in the global recovery.

Comments?