Wednesday, September 2, 2015

REALITY CHECK - WE ARE IN RECESSION

The economic storm clouds have been gathering for quite some time.

There are subtle litmus tests, like canaries in a coal mine, that show spending is tightening up - consumer confidence is waning.

On the eve of the last financial crisis - one I am not confident we really emerged from - the American Dollar had a great run, commodity prices tanked, global trade statemented, corporate earnings flat-lined and declined. We may have been lulled into a false sense of security. I fear the curtain is about to drop on the second act.

Newfoundland and Labrador has become dependent on energy, particularly oil. The boom in Alberta has been a salvation for rural areas of this province. High paying jobs have allowed rural communities here to proposer as a migratory workforce participated the Fort MacMoney shuffle. Last Fall, the pink-slips started - scores of folks were not recalled to the oil fields. The short-term impact has now turned into certain economic uncertainty. The jobs are on hold, EI is running out but the consumer debt and day to day living expenses continue.

The impacts of lower oil prices have caught the provincial government without much of a contingency fund - we spent to catch-up on decades of decaying infrastructure. The government shared the wealth by increasing public services and salaries. The good times rolled - despite the reality check of 2008. 

The oil patch in this province has also begun to shed jobs. The large producers have been cutting jobs. As the price of oil declines, companies profit margins have shrunk forcing everyone in the sector to re-tool. The impact has been felt in every sector of the local economy. At some point this gradual reduction of money in the economy - or lack of confidence-  started as a trickle - we are now on the precipice of a tipping point.

Housing sales, restaurant closures, retail closures and downsizing are all signs of the next crisis approaching.

The once robust higher end restaurant business in the city has been hit hard. Companies and individuals are tightening non-necessary expenses, cutting the fat. Stalwarts like Papa's Pier 17, Bianca's and Coffee & Company have been shuttered along with upstarts like LeGros and Motti. Surely, more will follow as the money dries up.

In St. John's we have seen the impacts. Despite robust sales, retail stores like Target - dragged down by poor sales across the country - closed their doors. Credit counseling services are experiencing a significant uptick in requests for assistance.

The false sense of security has led to a false sense of complacency.

The cracks in the dam built on low interest rates are growing, the structural integrity faltering daily as consumer confidence falters.

We are in recession without a plan to weather the global storm.

Are you felling anxious? You should be, particularly if you are leveraged on anticipated income that may not be there in the months to come!







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