Business

Up in the Air

Despite the roiling markets, much of Canadian business has yet to feel the economy’s sting

D’Arcy Jenish April 2 2001
Business

Up in the Air

Despite the roiling markets, much of Canadian business has yet to feel the economy’s sting

D’Arcy Jenish April 2 2001

Up in the Air

Business

Despite the roiling markets, much of Canadian business has yet to feel the economy’s sting

D’Arcy Jenish

If the Canadian economy takes a dive this year and consumer spending sinks with it, Wayne Sales figures he will be one of the first to know. The 51-year-old president and CEO of Canadian Tire Corp. Ltd. is certainly well placed—40 per cent of the populace makes at least one trip a week to the local Canadian Tire store. The apdy named Sales and his team have a lot riding on how the economy performs. Since 1994, they have presided over a $l -billion expansion of the nationwide chain that sells everything from spark plugs to microwaves to garden products. They have opened 237 new or rebuilt stores, many of them 100,000-square-foot big boxes, and they still plan to build another 40 before year-end. “The next three to four months should be better for us than last year,” says

Sales, an American-born retail expert who became CEO in August. “We haven’t seen any erosion in consumer confidence yet. ” Remarkably, that remains a common view in Canadian executive offices, even as share prices tumble, market indexes plummet and many economists foresee a downturn just around the corner. Call it NIMBY-itis. A recession? Not in my backyard, corporate chieftains are saying. Oil and gas industry spokesmen say they expect a record year—$25 billion in capital spending and 17,500 wells drilled. Real estate analysts say new and existing house sales should remain strong. Others point to the economic fundamentals—low unemployment, low interest rates and low inflation—as signs of strength. Even where sales are shrinking, experts say things

are not as bad as they look. The 275 members of the Automotive Parts Manufacturers’ Association expect to generate $32 billion in revenues in 2001, down eight per cent from last year’s record of some $35 billion. “It’s a slowdown, not a recession,” says association president Gerald Fedchun. “ Were getting back to normal after two years of high production that was not sustainable.”

The key to the country’s economic health, most observers say, is consumer confidence. But a big question looms: can it withstand the barrage of bad news that financial markets continue to deliver? The major American indicators experienced another volatile week, even after Federal Reserve Board chairman Alan Greenspan cut interest rates another half a percentage point to stimulate demand and bolster the economy. The blue-chip Dow Jones industrial average closed down more than 300 points while the tech-sensitive Nasdaq composite index, which has taken the biggest fall, managed a meagre 30-point gain. “We believe the U.S. economy will continue to deteriorate in the second quarter,” says Derek Burleton, senior economist with the Toronto Dominion Bank.

“And we’ve got a similar outlook for Canada. Over the next couple of months we are in for a bumpy ride.”

TheTSE 300 composite index performed no better than its American counterparts—finishing the week down 112 points. At the same time, the dollar took a beating on the currency markets, at one point coming within a whisker of its historic low of 63.43 cents (U.S.), recorded in August, 1998. Bank of Canada governor David Dodge remained unruffled by the loonies weakness, describing it as an “impetus to Canadian growth.” But the turmoil brought Finance Minister Paul Martin in from the sidelines. “The whole economic situation is of concern—the banking crisis in Japan, obviously the U.S. slowdown and the effect on the global economy into which Canada is integrated,” he said. “That is of major, major concern.”

The impact on personal spending and consumption, most experts say, is difficult to gauge. The most recent survey of consumer confidence, taken late last year by the Ottawa-based Conference Board of Canada before the current turbulence, showed that even then many Canadians were increasingly hesitant about the future. Only 19.5 per cent thought there would be more jobs in their community in the following six months, a drop from 24.6 per cent in the third quarter. And for many Canadians, any talk of recession inevitably brings back memories of the economic hardship caused by the severe downturn of 1990-1991. “The last one affected us for quite a few years,” says Carol Boughen, 52, a Cobourg, Ont., nurse whose husband Don is a partner in a company that sells lighting for commercial buildings. “We’re finally back on our feet, but we’d have to think about whether we bought a new car or made any big purchase. ” Canada’s retailers are coming off a banner year in which sales rose by more than six per cent, and the stores started 2001

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strongly, too: receipts for January increased 0.6 per cent over December, double analysts’ expectations. But many major retailers have begun to reduce their anticipated growth for the year to 2.5 or three per cent from four per cent due to the spate of bad economic news from south of the border and because consumers have already begun to put off purchases of big-ticket items like furniture and appliances. “Canadian retailers have been quickly affected by postponement disease,” says Toronto-based retail consultant Len Kubas. “The headlines from the U.S. have been so toxic—plant closures, layoffs, shutdowns and slowdowns—that everybody’s starting to wonder when its going to hit them.”

The skittish mood has belted the auto sector head on. New vehicle sales in Canada fell in February to 87,000 units, a drop of 8.8 percent from a year earlier. To date, however, only DaimlerChrysler has announced permanent layoffs. General Motors has managed so far this year by shutting down its Oshawa, Ont., car plants one week per month, and has scheduled similar closures in April and May. “There’s a feeling of uncertainty among many of our members,” says Terry Spence, financial secretary of Local 222 of the Canadian Auto Workers in Oshawa. “Nobody really knows what lies ahead.”

Even within the beleaguered high« tech sector, which has come down to 3 earth after several years of dizzying I growth, many observers foresee un“ certainty rather than calamity. Robert I Crow, vice-president of policy at the Information Technology Association of Canada, which represents about 1,500 companies, says there have been few announced layoffs, except among large international companies like Brampton, Ont.-based Nortel Networks Corp. and Ottawa’s JDS Uniphase Corp. Struggling companies, he adds, are more likely to find a merger partner than to close their doors. “Everybody is changing their business plan,” says Crow. “Everybody is more cautious, but we’re still growing, just not as quickly as before.”

Despite rising anxiety in some quarters, parts of the country should sail through an economic skid relatively unscathed. According to some economic forecasts, oil and gas activity will propel Newfoundland and Nova Scotia to above-average growth, and bolster the economies of Alberta, Saskatchewan and British Columbia. One of the hottest energy plays in the country is occurring in the Peace River country of northeastern British Columbia, where 125 rigs are drilling for oil and gas. Fort St. John, a city of 17,000 and the service centre for the region, boasted an unemployment rate of 1.4 per cent in January, and Mayor Steve Thorlakson says there are new retail, residential and industrial developments in the works. “We have a tremendous amount of activity,” he says, “and our longterm prospects look very solid.” Then again, the same could have been said for the rest of the economy a few months ago.

Patricia Chisholm