Q1 economic results; Canada overshadows stuttering U.S. recovery

2010 is poised to be an economic year unlike any other in recent memory as Canada continues to lead the way to economic stability and actual growth. Traditionally Europe and Canada have followed in the wake of how the US economy performed but following the deepest recession in a generation coupled with the near collapse of the banking sector it falls on Canada to set the pace in recovery. As different as that is its also very encouraging.

First Quarter results for 2010 are in and GDP grew in Canada by a resounding 6.1% based on reports published by Statistics Canada. This more than doubled the reported growth in the U.S. for the same period of 3.0%. Growth compared with Q4 2009 was a healthy 4.9%. Better still is that the growth is not fueled by a single component as key indicators such as consumer spending, residential construction and inventory levels each returned promising statistics. This marks the third straight quarter of growth for both nations although the Canadian economy didn’t reside in ‘recessionary status’ for as long as the States, entering that period six months later than the U.S. in Q4 2008. As we so often remark the confidence of consumers is a key indicator as to the stability of the recovery and consumer spending increases were sharp especially in the purchase of clothing and accessories. Import prices were also held in check due to the strong performance of the Canadian dollar during this period of time.

Home construction & investment driving Canadian GDP growth

The biggest gulf between the two appears to be in residential construction, while Canada saw significant growth of over 20% in investments the U.S. retreated back into negative territory with a fall of 10% after showing signs of life the previous two quarters.  Investment in structural and engineering projects remains soft in both economies and marked moderate declines in both cases. The marked collapse of a year ago however now seems to have passed. Companies are gradually reinvesting in machinery and equipment also, growth at 7.4% in Canada versus 12.7% in the States.

We’ll look at the minor increase in bank lending rates in the days ahead which as widely expected was increased in Canada to 0.50% from 0.25% on June 1st. This first step is a cautious move forward and not expected to be mirrored in the U.S. for some time yet.
While good news is good news, analysts feel there is too much reliance on spending at housing at present. Improved trade would secure the momentum of the recovery according to many observers. While Q1 exports showed great growth of 12.1% this figure still fell short of import increases of 14.8%. The catch 22 is that Canada needs customers (other nations, especially the U.S.) to feel more confident in spending on goods such as lumber and vehicles to create the positive trade results needed.  The Winter Olympics created a healthy return to the coffers of service exports as foreign visitors spent deeply during the winter games.

Report data courtesy of Reuters and Statistics Canada