Cheer up. It's not all bad. Though pink slips are flying like confetti, there are reasons for hope. For instance:
The balance sheet blues ... or not: Sure, the Canadian consumer is feeling strapped. Too many people were carrying too much credit card and housing debt going into the recession. (And we can't forget about the $55-billion or so of 40-year mortgages that were signed near the peak of the housing market and are still coursing through the financial system.)
But set that aside. Set aside the struggles of the banks, too, for a moment. The balance sheet of Corporate Canada is in decent shape. A few companies like Teck Cominco have blown themselves up with too much borrowing, as happens in every business cycle. But they're the exception, not the rule. The mid-decade credit boom encouraged many companies to lock in low rates on long-term loans; for others, near-record profit margins gave them the money to repay debt.
As a result, Canadian companies outside the financial sector have far less debt for every dollar of equity than they had going into the last recession, says CIBC World Markets - and less than firms in the U.S., the U.K. and the European Union.
Stimulus? It's there: U.S. president-elect Barack Obama wants the speedy passage of his budget-busting plan for lower taxes and more spending. But the typical family is getting some aid from price relief. "Look at the stimulus package we've already got," says Donald Coxe, the former BMO Nesbitt Burns strategist who recently left to open his own shop, Coxe Advisors. "Interest rates on mortgages have fallen. Gasoline prices are down more than 50 per cent. In other words, for the average American homeowner, the cost of living has fallen dramatically."
It's not the end, but it's hardly the beginning, either: By now - and especially after yesterday's dismal employment figures - most sentient human beings are no longer in denial. The recession's here and it's not going to be a mild one. That's progress. When people are still hopefully muttering the words "soft landing," it's still early. We haven't heard a credible economist say those two words, in that order, for months.
The National Bureau of Economic Research says the U.S. economy began contracting 13 months ago, which means that by summer, it will already be the longest recession since the Second World War. That will be cold comfort to those losing their jobs; unemployment is a lagging indicator, and it usually continues rising for months after the economy has begun to bounce back. Still, the odds say growth is months, not years, away.
Cuttin' Carney: David Laidler says he's bothered by something. Too many people don't really get what's happening with interest rates in Canada. They think rates are falling. They're not - not in real terms, because inflation is vanishing. (The real interest rate is the nominal rate minus inflation.)
In many categories of loans, Canadian real rates have not dropped at all in the past few months, says Prof. Laidler, and in some cases, they've gone up. As depressing as that sounds, it suggests central bank Governor Mark Carney has scope to cut further and deeper. An overnight rate of 0.5 per cent, down from the current 1.5 per cent, can't be far off. "There is still room to cut, and I hope they use it and they get ahead of this," Prof. Laidler says.
Home truths: The trouble started with a mania in the U.S. housing market. Could it end there, too? In other words, once the U.S. housing market shows signs of healing, confidence will return, and a recovery can begin in earnest.
It's very, very hard to look at the data on U.S. home prices and see rays of hope. Lately, the price decline has been accelerating: Of the 20 major cities tracked in the S&P/Case Shiller index, 19 experienced price drops in October that were as bad or worse as September. (The sole exception: Phoenix.)
But the bright spot is affordability. U.S. home prices had to fall because they'd gotten far out of whack with (a) incomes and (b) the cost of renting. The price-to-income ratio has already been brought down to about the 1990s average, says Moody's Economy.com. The price-to-rent ratio is still too high, but it's also returning to earth - fast.
Gloomy headlines don't always portend the future: "The recession has had such a disastrous effect on the job prospects of young Canadians that it may actually have created a lost generation." So wrote this newspaper in a front-page story that appeared in March, 1994 - roughly 15 months after the end of the early 1990s recession. But the next 14 years were anything but terrible for young workers, for Canada or for the economy. The big economic story of that period, the so-called "jobless recovery," soon gave way to a time of great prosperity.
So it will be again - some day.