David Rosenberg on Canadian GDP growth and housing..

Gee, David see's clouds on Canada's housing horizon..who would have thunk?

April 23, 2010

Looking back to last year, it would have been inconceivable to be talking about a Canadian economic miracle, but that is exactly what we have on our hands today; a classic V-shaped recovery with a 5% real GDP growth performance in the fourth quarter — a pace that will likely be surpassed in Q1. Unlike the nascent U.S. rebound, the Canadian bungee-jump has occurred with no arithmetic support from inventories and also with a lot less intervention in the form of fiscal stimulus. The National Bureau of Economic Research (NBER) is still unsure of when (or whether) the recession ended south of the border, but Statistics Canada boldly told us a little more than a week ago that the domestic downturn was officially terminated back in the third quarter of last year.

This begs the question as to what has been the principal factor underpinning this impressive Canadian economic revival, especially in relation to what is happening in the United States, where this goes down as the second weakest recovery in real final sales on record.

We can answer the question in one word: housing. The housing sector is the quintessential leading indicator of the economy, and true to form, it caught fire before the overall economy did in Canada — after a brief, but sharp, turndown in the latter part of 2008 and into those dark opening months of 2009. The U.S. market has stabilized at best, with the help of massive doses of government support, but in Canada, housing activity has absolutely been ripping.

Now, the housing market in Canada (the goose that laid the golden egg for the broader economy) is now going to be operating without the crutch of massive government support. It will be fascinating to see how this all plays out, especially since so much housing demand has already been filled by all the frenetic activity over the course of the past year.

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