Foreclosures, like this one in Glendale, Calif., doubled in many states between July and October last year. (Kevork Djansezian/Associated Press)

For Toronto resident Susan Bates, the U.S. economic slowdown has hit home. Bates inherited a $138,000 condo in Florida when her mother died in May 2007.

Not wanting to keep the real estate, she put it up for sale. But the condo is languishing on the U.S. market, along with tens of thousands of similar properties, even though she has lowered its price twice already.

A single mom, Bates says the decline in the U.S. housing market, stemming from the high-profile lending fiasco, has turned what began as a windfall into a burden. It was a surprise to her. But it is a surprise that is starting to sink in now on a wide variety of fronts as the rosy economic numbers of just a few months ago begin to slither away.

Related link

• MAP: Unemployment statistics (CP)

Indeed, as Bates continues to pay her condo fees and wait for the U.S. housing market to improve, a development not expected until at least 2010, American economists are furiously debating whether the U.S. has, in fact, entered a recession.

Their counterparts in Canada, meanwhile, are quietly revising 2008 forecasts for North America made last fall. Bold predictions have given way to gloomier economic statements.

Most are still optimistic and feel Canada will avoid a recession this year, but economists from the big five banks all agree that the Canadian economy will slow down and see nowhere near the growth of previous years.

On the political agenda

The economy is also now on the political agenda. As the first ministers gathered in Ottawa for dinner with Prime Minister Stephen Harper on Friday night, that is all they wanted to talk about.

Specifically, the premiers are looking for Ottawa's help to ease the effects of the high Canadian dollar, rising energy prices and a deteriorating U.S. economy that is shutting its doors to Canadian imports.

Many Canadian economists say a U.S. recession is unlikely in 2008, despite the unofficial hand-wringing south of the border. But should one occur, it will certainly have a negative impact on Canada.

Some sectors will feel its long reach, while some provinces will be hit harder than others. Certain sectors of the Canadian economy — particularly forestry, manufacturing and auto industries — have already been devastated by the U.S. housing woes and the credit crunch. The forestry industry, a mainstay of at least four provinces, has lost an estimated $5.7 billion since late 2005 because of a drop in U.S. demand. That has meant job losses, mill closures and, earlier this week, a promised $1 billion bailout plan from the federal government.

Economists also predict a U.S. recession or severe downturn could hit Ontario and Quebec harder than other provinces, given their relatively greater dependence on the U.S. economy. That these provinces will also be the principal battlegrounds in the next federal election will not be lost on their respective premiers.

The predictions now

A recession is traditionally defined as two consecutive quarters of no growth in gross domestic product though the U.S. has a more subjective rule. Its National Bureau of Economic Research, which officially dates the beginning and end of recessions in the U.S., defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

Many economists say Canada is in a better position than ever historically to weather a recession generated by its largest trading partner. They point to diminishing trade ties between the two countries, a booming resources sector with a greater number of world markets and different regulatory environments, which have allowed, among other things, for a still vigorous housing market in Canada.

In other words, the Canadian economy, although described as an "intimate trading partner" of the U.S., has begun to "decouple" from the American economy.

The Conference Board of Canada, among the most bullish in its predictions, forecasts 2008 GDP growth of 2.8 per cent for Canada and 2.1 per cent for the U.S.

Avery Shenfeld, a senior economist at CIBC World Markets in Toronto, says it will be clear from economic data over the next few months whether the U.S. is actually in recession. "Our best bet is that the U.S. would have a blush with recession, but not fall over that precipice," he says.

On the other hand, the brokerage firm Merrill Lynch said this week that the U.S. is in the first month of a recession, a call prompted by negative employment numbers released January 4 by the U.S. Bureau of Labour Statistics. It reported that the unemployment rate in the U.S. rose to 5 per cent in December, the highest it has been in two years, while employment growth was at its slowest in more than four years.

Canada, too, is showing a slowdown on the job front. Statistics Canada just reported a loss of almost 19,000 jobs in December. The unemployment rate held steady in December at 5.9 per cent.

But the job loss, which came after seven consecutive months of increases, prompted the Canadian dollar to fall by more than a cent. The job loss was greater than analysts were expecting, the main reason being weakness in manufacturing.

Weather the storm

Despite these signs, the CIBC's Shenfeld says the recession call is still premature. "The numbers are bad, but not bad enough."

However, Ritu Sapra, an economist at TD Economics in Toronto, says fears of a recession will grow if the U.S. housing slump affects consumer spending, which has been the big driver of U.S. economic growth in recent years. (U.S. consumption makes up 71 per cent of its GDP, while Canadian consumption makes up only 60 per cent of our total economic output.)

"We still do not believe a recession is the most likely scenario," she says. But as Canada exports about 76 per cent of its products to the U.S., a figure that accounts for about 23 per cent of Canadian GDP growth, a U.S. recession would be a huge a drag on the Canadian economy, corporate profits and, likely, consumer spending.

In an analysis of the Canadian economy posted December 21, 2007 on the TD Economics website, Sapra writes that "the Canadian economy cannot continue to defy gravity and there are signs that weaker conditions are ahead." Still, she is predicting GDP growth in Canada to be 1.9 per cent in 2008. TD suggests U.S. economic growth will be about 1.8 per cent but a Dec. 13 forecast admits it has "become less sanguine about the near-term economic outlook."

"The good news is that Canada is well positioned to weather the storm," the earlier TD report says. "The domestic economy is solid and the risks in real estate markets is limited. The manufacturing sector is facing another extremely difficult year, but the affected firms are already braced for this."

In its Financial Markets Monthly, released in January 2008, the Royal Bank of Canada Economics predicts that both the Canadian and U.S. economies will rebound halfway through this year because anticipated interest rate cuts by the Bank of Canada and the Federal Reserve in the U.S. should stimulate household and business spending.

It forecasts the U.S. economy to grow 2.1 per cent this year, with growth in the first six months averaging 1.5 per cent, and the pace increasing to about 2.5 per cent in the second half. It forecasts the Canadian economy also to grow by 2.1 per cent this year.

Feels like

All this talk about a recession has pushed the economy back into the headlines. Chief economists from Canada's big five banks gathered in Toronto on January 9 to speak at the annual outlook breakfast of the Economic Club of Toronto. It was its biggest ever with more than 600 people attending. The economists said they see slackening in the Canadian economy, but they do not expect a recession either in Canada or the U.S. this year.

As usual, though, they diverged in emphasis.

Sherry Cooper of the Bank of Montreal Capital Markets, told the Canadian Press: "I'm not prepared yet to say the U.S. economy is in a recession, but we sure aren't far from it, and it will feel like recession."

Cooper said the U.S. housing decline is "without precedent." She predicts 2.2 per cent growth in Canada this year but "sub two per cent" for the U.S.

On the other hand, Pedro Antunes, director of national and provincial forecasts for the Conference Board of Canada in Ottawa, says consumer spending would have to take a "big hit" in the U.S. to push the U.S. economy into recession.

As for the Canadian economy, he says the Conference Board is optimistic because of consumer spending, government spending and business confidence.

For Susan Bates, however, the debate over a recession is mostly academic. "They can argue all they want, but the question is, 'here it is and what are they doing about it?'"

She says some Americans are already going through hard times. On a trip to Florida in October, Bates sold her mother's 1991 Toyota Tercel, in the process receiving a call from a woman living in her car. The woman, who saw the ad in the local paper, left a long voicemail message, saying she wanted to upgrade her living space to a better vehicle.

"People are suffering. Time and energy should be spent on deciding what should be done to improve the economy," she says.

The New York Times, in a January 10 opinion piece, "Not Just the Fed," says the U.S. Federal Reserve could help to save the day by cutting interest rates. It adds: "More than a million people stand to lose their homes over the next two years. Some 10 million families stand to lose all of their home equity. Inflation is wiping out gains, while pushing up prices for food and gasoline. Job growth has stalled and unemployment is rising."

Bates says the foreclosure signs have multiplied in Florida. "It's bad. And it's not like we in Canada are totally immune from it."

With files from the Canadian Press

[an error occurred while processing this directive]