The latest economic signals from the United States are disturbing; they ought to give our political leaders reason to pause before embarking on draconian austerity programs.
In the past week, the U.S. reported a dramatic fall-off in home sales, a drop in manufacturing activity, a rise in new claims for unemployment benefits, and a net loss of 125,000 jobs. The unemployment rate fell marginally, to 9.5 percent, but only because many jobless people stopped looking for work. The stock markets responded with their worst week in two months.
The combination of negatives led to renewed talk of a W-shaped recovery, with the U.S. economy dipping back into recession.
That would be bad news for the whole world. It would be catastrophic for Ontario, where half of our economy is dependent on trade with the Americans. If they stop buying cars and household goods, our manufacturers feel the pain.
Perhaps in anticipation, the communique emanating from the G20 summit last month acknowledged that the economic recovery is still “fragile,” with unemployment in many countries remaining at “unacceptable levels.” As a result, the G20 called for countries to follow through on their stimulus plans and to move cautiously on restraint, with a target of cutting deficits in half by 2013. ...
This is summit-speak for: Don’t slam on the brakes.
The right-wing commentariat found that message far too limp and called for a more urgent approach to reining in government spending. In an opinion piece last week, Kevin Gaudet of the Canadian Taxpayers Federation compared the Canadian fiscal situation to that of the so-called PIGs (Portugal, Italy, Greece and Spain), when provincial deficits are lumped in with Ottawa’s. He urged Ottawa to “push the provinces hard to get their budgets back under control.”
Given the U.S. economic numbers, this is precisely the wrong advice at this time. Our governments should continue implementing the stimulus projects that have already been committed to and, indeed, should be prepared to fund additional stimulus if the economy falls back into recession. Deficit cutting can wait until the economy is back on more solid footing.