Well, the official call is not out yet, but it's pretty clear what we've got. Friday's Canadian economic data show a recession, pure and simple.
Statistics Canada told us that the Canadian economy contracted by 0.8 per cent at an annualized rate in the third quarter of this year. That decrease was the first since 1992, and worse than the market's expectations of a 0.6-per-cent decline.
The details are pretty dark. For a lot of reasons.
On the domestic front, consumer spending actually dipped in the third quarter. Canadians spent a bit more on services, but they pulled back sharply on big-ticket items like cars. In fact, they pulled back on smallish-ticket items like clothing too. It was not that income slumped either. With things unraveling around them, many people apparently figured it was time to start saving, and that's what they did.
Thanks to some major projects, total machinery and equipment rose by 3.1 per cent in the quarter. Investment in machinery and equipment, however, dipped by 12 per cent. That's the fourth decline in a row for this category, and an ominous sign. Without putting money into technology, it is difficult to see improvements in productivity. And without productivity improvements, it is hard to think about stellar economic growth down the road.
We also got U.S. GDP numbers Friday. Previously, the U.S. Commerce Department had said that the U.S. economy had contracted by 0.4 per cent in the third quarter. Now, that number has been revised down to 1.1 per cent. U.S. companies apparently drew down inventories even more than previously thought.
But enough with the grim details. Here's the big picture for Canada.
Recessions get followed by recoveries. That's sure to happen this time, particularly given the amount of stimulus that has been sloshed into our economy in the form of rate cuts. The total so far this year is 350 basis points, and the Bank of Canada may be prepared to do some more (Central Bank Governor David Dodge did not seem to rule that out when he spoke in Ottawa yesterday). Remember too, that we will likely get a bit of tax-cut-spending-increase help too, with the Federal Budget next month.
The catch is that the whole thing can take a while to happen. Optimists see things roaring back by the second quarter of next year. Pessimists (or should we call them realists?) think it will take at least a quarter or two more than that, and that things will come back with a kind of whimperish-roar.
Next week we get employment data for both sides of the border.
Stay tuned.
Linda Nazareth is ROBTv's resident economist.