Analysis: Canadians losing faith in economic "miracle"

By Louise Egan and Andrea Hopkins

OTTAWA/TORONTO (Reuters) - Factory worker Nelson Claros has little time for talk of the Canadian economic miracle.

The 50-year-old was laid off last year from his job of 22 years at a bus-assembly plant northwest of Toronto, and has since applied for 130 jobs. His best offer: A job at $12 an hour, half his previous wage and not enough to pay his bills.

"Really there is a recession right now. They don't call it a recession, but the companies are closing, there are a lot of layoffs. How can this be a miracle economy?" he asked.

It wasn't supposed to be like this. Canada's recovery from a mild 2008-09 recession was quick and job-filled, and the country added nearly 900,000 jobs to take the jobless rate to 7.2 percent from 8.7 percent at the depths of the downturn.

No bank needed a government bailout, the housing market did not collapse and Finance Minister Jim Flaherty repeatedly boasted about how Canada was outperforming its partners in the Group of Seven rich industrialized economies.

But recent growth has consistently fallen short of expectations and a very rough patch late last year turned disappointment into dread. Economists had been betting on a quicker U.S. recovery to boost Canadian exports, as well as a pickup in business spending.

The slowdown could spell trouble for the Conservative government of Prime Minister Stephen Harper, which is showing signs of mid-term stress and losing ground in opinion polls to the third largest party, the Liberals.

Policy makers predict a brighter second half of 2013, but people like Claros and business leaders are not so sure.

"I don't see any solution for the problem of people who are laid off right now," said Claros, a single father of four, who is living off his severance pay and is waiting for the 31 weeks of unemployment insurance he is eligible for.

Some 54,000 Canadians joined Claros in the ranks of the unemployed in March, the worst monthly job losses in more than four years.

Previous engines of growth - housing and consumer spending - are slowing, and businesses are shying away from investments.

And with the government striving to balance its budget and the Bank of Canada talking of rate hikes rather than cuts, official stimulus programs are off the table, at least for now, leaving resource-rich Canada hitching its economic star to uncertain hopes of a strong energy sector and a U.S. recovery.

Harper wants Canadians to look at the bigger picture and not draw gloomy conclusions from the latest data.

"We can expect we're going to have good months and bad months in terms of numbers. The trendlines remain generally positive," he told reporters in Calgary on Thursday.

Still, Canadian growth is set to weaken for the fourth straight year in 2013 and trail the U.S. performance for a second year. But at a forecast 1.6 percent, it will likely surpass the euro zone countries and Japan by a wide margin.

LOWERING EXPECTATIONS

The labor market is far healthier than that of the United States, but job growth has lagged population growth, making the recovery incomplete. There are 1.4 million unemployed Canadians competing for jobs compared to 1.1 million prior to the crisis.

Alysa Golden, an unemployed social worker with 20 years of experience, said the last online job posting that fit her skills had 1,600 views in the first 24 hours it was posted. The 49-year-old is starting to lower her expectations in terms of salary and interest.

"With two kids, we really need something steady coming in, sooner rather than later."

Wage growth has been decent at 2 percent a year, but experts say nervous consumers won't spend enough to provide a significant boost to the economy, especially as households have a record C$1.65 of debt for every dollar earned.

"I do see things continuing on much as they have, where there will be economic growth, there will be some jobs created, but it won't be enough to significantly reduce unemployment or improve the labor market," said Erin Weir, economist for the United Steelworkers union.

As for housing, most are pleased to see an end to the overheated prices of a year ago. But a slowing housing market is dampening growth and raising fears of a U.S.-style crash.

Dustin Kroft, owner of Rent-a-Son moving company in Toronto, said he has "that sort of pit in your stomach" feeling after seeing an estimated 17 percent fall in sales in March. "It has been a while since I felt that," he said.

The latest figures suggest the housing sector is cooling, not crashing, after the government tightened mortgage rules in mid-2012 to prevent a real estate bubble.

WAR FUNDS

Business investment remains slow and outgoing Bank of Canada Governor Mark Carney wants the private sector to unleash some of what he has called the "dead money" to stimulate the economy.

But companies need to put cash in a "war fund" until better times, said Betty Lou Pacey, founder and chief executive officer of BL Innovative Lighting, a small Vancouver-based business that exports optical fiber for lighting.

She cites the massive U.S. fiscal deficit as the biggest external threat for exporters, whose sales growth depends on healthy U.S. demand. Her own company has a couple of costly projects "percolating" that would be easier to commit to if circumstances were better.

"You're not going to go hog wild and spend all your money. It would be foolish for a business to do that."

And despite the more bullish mood on energy prices, some oil sands producers are shifting strategy in the face of stiff competition from cheaper-to-produce U.S. domestic oil. Last month, Suncor Energy Inc scrapped plans for a multibillion-dollar Voyageur upgrading plant, saying returns would not meet previous expectations.

Canadian businesses expect to boost capital spending this year by a mere 0.8 percent, the worst rate since 2009, Statistics Canada said in a report earlier this year.

"Our country's little engine is really not very big," said Pacey, referring to the hard-hit manufacturing sector.

"So that little engine is vital to the life of this country and we need some alarm bells going off."

(Additional reporting by Jeffrey Jones and Scott Haggett in Calgary; Writing by Louise Egan; Editing by Janet Guttsman, Martin Howell)

Source: http://news.yahoo.com/analysis-canadians-losing-faith-economic-miracle-050910904--business.html

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