Calling the recession

BMO joins the fray:

Judging from recent indicators, we are prepared now to say that the U.S. economy is in recession. The marked and widespread deterioration of business, consumer and investor sentiment since the start of 2008 has prompted us to revisit and revise our forecast.

Ever the optimist, though, BMO’s Doug Porter sees Canada missing the bullet:

However, there are three solid reasons to believe that the Canadian economy can narrowly avoid an outright recession: a) the housing market is much healthier than in the U.S., b) government finances are in strong shape allowing for the recent GST cut and upcoming fiscal measures, and c) the commodity boom of recent years will support capital spending.

That’s a revised — one might even say, less impressive — list of reasons Porter outlined (and I blogged) back at the end of 2007:

1) significant tax cuts are arriving in January, 2) housing is still holding up very well nationally, 3) strong commodity prices are supporting corporate earnings and personal incomes, and 4) credit conditions are much less restrictive in Canada than for U.S. borrowers.

Note the change in language — strong commodity prices are now the “recent commodity boom”, suggesting (quite possibly correctly) that it’s over, and the shift has focused from the tiny 2008 tax cuts and the imaginary stimulative effect they might have to the strength of government finances, which has started to come under scrutiny.

RBC sees weakness in the trade sector seeping into Canada’s domestic economy as well:

 We agree with the Bank’s assessment that the outlook for exports has been dampened by the deterioration in the U.S. economy. We also expect this weakness to filter into the domestic economy in the months ahead. We now expect Canada’s economy to grow at a slower than 2% pace in 2008.

For a truly triumphant view of the Canadian economy, trust the housing market’s main lobby group, the Canadian Real Estate Association:

Three key economic ingredients will keep Canada’s housing market on a different track from the United States. One is consumer confidence, the second is employment, and third is affordable interest rates. The Bank of Canada cut interest rates on January 22nd because of weaker prospects for Canadian economic growth in 2008.

I told you this would be a happy view. Don’t worry, there’s a silver lining:

“Those lower interest rates will also help temper the erosion in housing affordability due to additional home price increases,” Bosley added.

If only mortgage rates were set based on the overnight rate. But they’re not. Chief Economist Klump continues:

“Consumer confidence may be sideswiped by stock market volatility, and reports that chances of a U.S. economic recession will put the brakes on the Canadian economy. With slower job growth, a low unemployment rate and the absence of widespread layoffs, consumer confidence will bounce back. The domestic economy and the housing market will weather the sub-prime fallout with the help of lower interest rates”.

Is it just me, or does the CREA seem to be trying much harder than usual to paint a rosy picture?