Worst recession since WW2?

According to an Associated Press article published today, an economist with the Stanford Financial Group in the U.S. is speculating the American economy could suffer its worst recession since the Second World War.

That sounds kind of ominous and tends to conjure up images of the Great Depression, with hordes of unemployed men crowding on to railway boxcars looking for work. However,
when you read further into the story, you find the worst recession since the Second World War was in 1973-75 when the gross domestic product plummeted by -- wait for it -- 3.1 per cent.

Another economist quoted by AP projects the U.S. economy could contract by a whopping 2.2 per cent this year -- meaning for every dollar an American made before the recession, they will only make 98 cents after the end of it.

This does not suggest a contraction would have trivial consequences, but American economic growth has been fuelled largely by consumer and government debt, and this is not sustainable.'

In the January/February issue of Atlantic, James Fallows reports American owe a total of $1.4 billion to the Chinese.

American consumers can only borrow so much, and it doesn't take an economist to figure out that sooner or later, Americans will have to spend less and start paying off debt.

A drop in spending from Americans would certainly affect Canada. How much is a matter of speculation.

The economic picture in Canada is mixed, with unemployment at a 33-year-low.

Most jobs created in February were in Ontario, which lost about 20,000 manufacturing jobs (due in large part to the drop in the U.S. dollar) but gained 31,000 construction jobs and 19,000 public administration jobs. Employment in professional and technical services also increased.

So the economic picture in Canada (at least for people who aren't stuck holding hard-to-sell asset-backed commercial paper) is not bad. However, Statistics Canada's "composite leading indicator" has dropped ever so slightly, and
new orders of durable goods have declined from last September.

http://www.statscan.ca/Daily/English/080320/d080320d.htm

Don't bet money that Canada is headed for growth, and the employment picture in manufacturing isn't that great. But there's no reason to forecast a huge economic disaster in Canada in 2008.