Moving beyond temporary stimulus
A new year is upon us and with it has come the annual tendency to reflect on the past and look with optimism to the future. The days are finally getting longer and soon the consumer will begin to emerge from his/her self-imposed hibernation to kick off another spring buying season.
Before we know it, we’ll be packing up our shovels and de-icing our lawnmowers. It is time for Canadians to once again think about spring cleaning and summer vacation. We may have six (or eight, or 20) weeks of winter left. But we’re optimistic. We have to be.
While most people spend this time of year wondering what lies ahead for their families or careers in the year to come, I stare at the ceiling and try to imagine a Canadian economy suddenly deprived of the life-giving federal stimulus that has helped sustain it for the past two years. To each his own, right?
For as surely as night follows day, the federal government will soon begin the process of imposing a dose of fiscal austerity on our economy. We’re talking government here, so the process will move at something less than the speed of light. But, barring a significant shift in the political winds, many of the extraordinary spending programs enacted during the worst of the recession will fade, as the government shifts from supplementing soft demand to paying the bills.
The metaphor of an economy nursing a New Year’s hangover with a steep credit card bill in the mailbox is a hard one to ignore.
What does this all mean?
Readers will be forgiven for wondering what all the fuss is about. After all, most of us didn’t see any of those billions of federal dollars pass through our own hands, particularly those lucky enough to avoid a job loss.
But despite the perceived distance between us and the money our government spends, there will be some very real effects as the economy is forced to stand on its own two feet in the months to come.
The most important indicator we should be watching this year is the unemployment rate. Typically in Canada, if you have a job, you need a car to get to it and if you have a car, you need a job to pay for it. As such, there has always been a very tight correlation between the two markets in Canada – sales plunged in 2008 and 2009 as the unemployment rate surged from less than 6 percent to more than 8 percent, and more than 400,000 jobs were lost.
We’ve since recovered most of those lost jobs, and part of the credit has to go to federal deficit spending, soon to be withdrawn.
Now that most of the federal infrastructure and projects enacted to boost the job market through the recession are nearing an end, private demand will have to support employment from here on out. Most guesses see us growing at a pretty modest rate this year, but more robust growth will be needed to bring down unemployment in a meaningful way.
For our industry, it’s hard to predict that sales will grow this year at the same clip as they did last year. The hangover, sadly, has no quick cure.
All said, we remain leaders in the pack of countries still struggling to balance the competing demands of slow growth and huge deficits. Economics is a social – not a laboratory – science. We won’t know what might have happened without stimulus, nor can we be certain of the ideal timing for its withdrawal.
In the end, I would argue that the optimism that often comes with a new year should encompass the faith that we’ve chosen a solid path to self-sustaining growth – albeit growth that will be slow for a couple of years – and eventually balanced budgets.
No one can know with certainty if the ideal time to turn off the fiscal spigot has come, but our fundamentals are very strong in this country and even if the timing is not perfect, we have the collective resilience to adapt and deal with it.
Call it a healthy by-product of our legendary winters.
