The good news is that Canada's economy isn't sinking as fast as that of the U.S., Europe or Japan. The bad news is that this doesn't matter much.
That's the lesson from the latest spate of economic data released yesterday by Statistics Canada.
On the face of it, the Canadian figures are grim enough. Gross domestic product, which measures everything the country produces, shrank at an annualized rate of 3.4 per cent during the final three months of 2008 (StatsCan expresses its numbers in annual terms to provide a better picture of the economy's momentum).
That's a remarkably steep drop. You'd have to go back to the punishing recession of the '90s to find anything comparable.
Moreover, the current decline is widespread. Even production from Canada's robust mining and energy sector fell by more than 4 per cent.
We all know that manufacturing – particularly auto manufacturing – has been hard hit, thanks in large part to the collapse of the U.S. consumer market.
But yesterday's figures show that manufacturing's problems have finally started to infect the entire economy.
Construction fell by 4.7 per cent. Retail trade slipped by 6.2 per cent, while wholesale trade declined by almost 20 per cent.
Think of it this way. When auto workers lose their jobs, they don't buy new shoes. When shoe salespeople lose their jobs, they can't afford new homes. And when carpenters are laid off, they can't afford new cars. It's a self-perpetuating downward spiral.
Clearly, most of the country (excluding auto towns like Windsor and Oshawa) is still near the beginning of this recession. That's why Greater Toronto shows few signs of visible stress.
There are still plenty of SUVs pulling up to the drive-in windows of local doughnut shops. The number of panhandlers along Yonge Street has not increased markedly. Residential neighbourhoods in Etobicoke are not blanketed with foreclosure signs.
In fact StatsCan notes that the total income of wage and salary earners across Canada continued to grow slightly during the last three months of 2008.
But two warning signs stand out.
First, although disposable income is up, people are already cutting back on their spending. Instead, they are socking away any extra cash. The savings rate, which used to hover around zero, is now over 4 per cent.
That may be wise for the individual saver. But it's bad news for those who make their living by selling or making things.
Second, and more important, corporate profits are collapsing. Profits fell by an astounding 60 per cent during the last quarter of 2008, a record decline.
When corporations lose money, they tend to lay off employees. When corporations lose a lot of money, they tend to lay off a lot of employees.
Canadians may try to console themselves with the fact that, so far, other countries are doing worse. The U.S. economy fell by about 6 per cent during the last quarter of 2008, as did that of the European Union.
Japan's economy contracted by a whopping 12.7 per cent.
The so-called emerging economies that were supposed to help pull us from recession this time around, such as Russia, China, Brazil and India, are also struggling.
Still, we shouldn't feel too smug. Canada depends on the world economy.
The U.S., Japan and Europe – aided and abetted by nations like China – remain the linchpins of that world economy. If they go down, no one is safe.
