RED DEER – Economic growth and consumer confidence in Canada are outpacing the United States, where millions are still unemployed and struggling to pay off debt.
Economist Charlie McVean says Americans are working fewer hours per week compared to three years ago and they are reluctant to spend.
“This is the crisis that confronts the United States,” he told a recent Alberta Beef Industry Conference in Red Deer.
“For the first time in history, not only are we working less in the last couple years, total number of hours is three percent below where it was a decade ago.”
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Average hourly earnings are up about two percent, but the recovery looks weak when the number of hours worked are multiplied by wages.
“In reality, there is virtually no growth whatsoever (in the U.S.) compared to three years ago,” he said.
Glen Hodgson of the Conference Board of Canada said government stimulus programs were necessary.
“America would not have recovered, frankly, without the tremendous stimulus package, but it is coming at a huge price with the structural debt the Americans now have,” he said.
The government is expected to deal with the $1 trillion budget deficit by increasing taxes and slashing government spending. About 10 percent of annual gross domestic production will have to be set aside to pay debt.
A bounce back of four to six percent growth is common following a recession, but Hodgson said that is not happening this time. It could be another 18 months before there is sustainable growth of two percent. Inflation is also returning with interest rates increasing by the second quarter of this year.
He said the situation is less dire in Canada and consumer confidence made the quickest turnaround in the western world.
Canada was in a good position when the recession started in 2008 because federal and provincial governments were paying down debt. The total deficit between the two levels of government is about $95 billion, a much healthier situation than the U.S.
Hodgson said government investment in infrastructure should make the economy hum after long over due repairs are made to roads, bridges, ports and water systems.
The government is committed to maintain transfer payments to provinces, he added, because if it didn’t, the provinces would be forced to raise the money for health and education.
All the provinces are expected to make economic gains in 2010 and if oil returns to $120 US per barrel, the extra revenue will go to government coffers.
However, exchange rates and oil prices are connected.
“You can no longer rely on cheap currency for international competitiveness,” Hodgson said.
The dollar may reach par or hit $1.05-$1.10 for a short period, especially if oil continues to rise. Energy prices are difficult to forecast, but Hodgson said oil could reach $100 per barrel in 2011 and $120 per barrel in 2014.
