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Trendlines Recession Indicator: Feb/2011 Canada update

May 25, 2011 4:17 PM ET
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chart link:  trendlines.ca/TrendlinesRecessionIndicat...

  TRI infers Canadian Q1 GDP on 2.0% pace

May 25th delayed FreeVenue public release of Feb 16th guidance @ the Trendlines MemberVenue ~ The Trendlines Recession Indicator continues to imply "a recovery of the Recovery" with an early inferred Real GDP of 2.8% for February, up from the 2.1% pace in January.  In late January, StatCan confirmed the November GDP growth rate was a mere 1.4% (TRI = 1.1%).

In Nov/2009, the TRI was the first mainstream analysis to indicate the Recovery was exceeding 5% GDP growth rates.  But within mere weeks the Indicator began to already project its serious deterioration.  By December 23rd 2009, the TRI signaled the first alert of a potential double-dip.  As North American news became worse, the date for a downturn was accelerated.  But then in late April - all signs of future negative GDP vanished.  TRI today projects 2.0% GDP in 2011Q1 & 3.8% in Q2.

The dismal activity in 2010H2 represents a significant plunge from the heady 6.2% GDP days back in January 2010.  Because it flies in the face of three months of fiscal stimulus spending still to be distributed, we are confident the downturn reflects our March 5th 2010 warnings that Bank of Canada would have to ratchet back if it raised interest rates too quickly in light of: aprobable double-dip in the USA, an export killing near-par Loonie & an imminent bursting of Canada's Housing Bubble.  Afterwards Carney raised rates three times.  Only ten months ago, the Central Bank & the Minister of Finance had assured Canadians that there is no realty bubble up here.  Then we watched home valuations plunge $22k from June to August!

Factors contributing to sub 5% weakness in our short term outlook continue to be:  (a) waning Fed/Prov fiscal stimulus cheques;  (b) an assault on exports by a "par-plus" Loonie;  (c) the consequences of deteriorating "wealth effect" associated with the ongoing correction of the$78,000 Canadian Housing Bubble - including a probable assault on consumer/commerce confidence;  and (d) renewed threat of a collapse of New Vehicle Sales in North America should there be a sustained breach of the $90/barrel threshold of crude oil (see our Gas Pump &Barrel Meter analysis).  At this time, it appears this episode could last 'til 2012Q4.  TRI has a fuzzy horizon of eight quarters and currently it appears GDP will climb to 3.9% by 2012Q4.  Ramifications of the foregoing issues should prevent growth rates from any sustained surprises to the upside until 2015-2016 ... just prior to the probable conclusion of the current business cycle in 2017Q3.

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