The first date to mark the current economic downturn wasn’t a specific day as such, but rather a stretch of time during which a news story gathered momentum. It featured reports about a potential problem with sub-prime mortgages in the United States and it first came to light in early August 2007.

I remember this very well because I was on holidays with my family at the time. We walked into a grocery store in Wasaga Beach and I noticed the headlines at the newsstand. Like millions of others, I wondered what in the world was going on.

After returning to work, I researched and read about financial markets all through the fall and acquired some understanding of what might be coming, without seeing the full implications. The sub-prime mortgage crisis spread outward into a world-wide financial crisis and a subsequent global economic slowdown.

The second date − Monday, September 29, 2008 − brought the crisis home to Canadians. As is so often the case, it was due to an event that occurred outside this country. The financial bailout package failed, on its first try, to gain passage in the U.S. House of Representatives. This sent stock traders stampeding for the exit doors.

The significance of September 29th was that for the first time, a specific segment of Canada’s economy was directly and dramatically affected. Stock markets around the world, including the Toronto Stock Exchange, plunged. The peak to low-point change in North American stock indices has been -50%. Declines in the value of mutual fund and RRSP accounts have brought the seriousness of the situation home to all Canadians.

Until September 29th, the adjustments in this country had been relatively modest − some decline in existing home sales and prices, weak sales of cars to U.S. customers but still strong demand for autos domestically and recognition that commodity prices were starting to slide, which might not be such a bad thing, as long as they stayed relatively buoyant for the sake of our resource industries.

Since that date, there have been November’s large decline in employment, more announced layoffs to come, a huge drop in oil prices, major energy project cancellations, the need to rescue the Detroit Three carmakers from bankruptcy and on and on.

What does the future hold? To the extent that recovery is dependent on a pickup in world trade, the short-term prospects are not good. To the extent that recovery is dependent on leadership from Ottawa, we may be out of luck, based on the evidence of the past two weeks.

So when can we expect recovery? Here’s one logical progression of events. A well-functioning economy needs some degree of inflation. About 2% is generally considered best. A modest level of inflation underpins house price advances and makes homeowners feel more prosperous. It also helps firms and individuals pay off their debts.

The year-over-year Consumer Price Index change will be weak through July of next year due to commodity prices peaking in July of this year. Therefore, don’t expect much improvement in economic news before the fall of 2009. In other words, keep your fingers crossed that the holiday season next year will be a whole lot cheerier than the lead-up to this year’s winter break.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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