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Economy on the rise, little by little

By Mario Cywinski |

Listening to the recent rash of news reports on the state of the economy can make you dizzy. One claims we are out of the recession, another that there is growth, yet another will tell you things aren’t as good as they seem. So where do we stand?

Somewhere in the middle is the best way to describe it. The economy is improving, but it is doing so slowly.

Having searched through a variety of reports, here is how the economy is shaping up.

Small business owners seem to be a confident group as almost half think the current economy is good or very good, according to the STAPLES Canada Small Business National Quarterly Index.

"Confidence is strengthening but at a measured pace; however, it is a long, slow and steady rise, as we've anticipated for some time," said Citi Economist Dana Peterson. "Small business owners will likely continue to modify their businesses as structural adjustments in key sectors unfold."

Owners are also optimistic, as 47 per cent believe the economy will improve by the end of the year. Not all is rosy; however, as 52 per cent of Canadian small businesses are cutting costs and payroll to cope with the current economy.

Nearly two in three finance executives expect the economy to rebound in a short time, the next six months, with growth resuming, a RBC Capital Markets survey found. However, most believe the recovery will be slow. Additionally, over half of executives believe corporate profits will not be the same as they were before the recent recession for the next five years.

"What we are seeing is a fundamental re-examination of traditional beliefs such as efficient market theory, the role of the U.S. dollar as the primary global reserve currency, and credit rating agencies," said Richard E. Talbot, co-head, Global Research, RBC Capital Markets.

As many have found out over the past year, predicting financial markets can be an exercise in futility. Executive agree, as 48 per cent have little or no confident in themselves being able to predict if prices and rate in financial markets will rise or fall over the next year.

While most think they cant predict the future, they will spend if the economy improves. Canadian executives were asked by Robert Half Finance and Accounting, what they plan on spending their resources on once the economy improves. Top answers were:

  • Hiring additional staff (22 per cent);
  • Increasing current employee salaries (22 per cent);
  • Investing in employee training (20 per cent);
  • Increasing or reinstituting bonuses (14 per cent);
  • Enhance employee benefits (six per cent);and
  • Some will be making no spending increases (12 per cent).

"Employees need to be rewarded for the additional load carried during tough times," said Kathryn Bolt, president of Robert Half Finance & Accounting's Canadian operations. "If increasing compensation is not feasible, there are other methods to recognize employees, such as granting additional vacation days or offering telecommuting options."

Adding to the above point on salary increase, average wage increases in 2010 will be 2.5 per cent in Canada, highest in Alberta and Saskatchewan and lower in Ontario and Quebec, according to the Special Report on 2010 Salary Forecasts by Conseil du patronat du Québec (CPQ). Largest sector increases will appear in public, insurance and pharmaceutical sectors.

Salaries, or course, are paid for in Canadian currency. The Canadian dollar has been increasing in value, while problems for the greenback are expected to continue, as 30 per cent of executives think the U.S. dollar will lose reserve currency status. It is down 20 per cent since 2002 according to CIBC World Markets report; this has resulted in European and commodity currencies (the Canadian dollar included) being overvalued.

Another aspect of the economy has been the slowdown in the housing industry. Luckily, housing prices are firming as confidence in the global economic recovery has sustained increases according to the Global Real Estate Trends report from Scotia Economics. A slight revival in demand for housing has been led by low borrowing costs and affordability. However, activity is said to be subdued for a while as excess housing (from years of overbuilding) remains in the market.

"Homeownership is a crucial sector of national economies and an important source of wealth for many households, influencing spending, saving and borrowing decisions," said Adrienne Warren, Senior Economist, Scotia Economics. "It also has significant spillover to other domestic industries, including retail sales, finance and insurance, and a range of professional and household services."

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