Why you should stay the course

by Lou Smyrlis

Late in the summer we received the unsettling news that Canada is back in recession. For those of you who have worked so hard to climb back from the financial black hole created by the  Great Recession, what does this mean to your company growth plans for the rest of the year and into 2016? Is it time already to hunker down yet again and watch expenses, delaying investments in new equipment, facilities, staff and services? I don’t think that would be wise. Here is why:

Based on what I’m seeing in the North American economic data and listening to what the economic experts are saying, it’s too early to be hitting the panic button. The Canadian Manufacturing Purchasing Managers Index is a good indicator of future expectations of economic growth. Put simply, if purchasing managers are optimistic about future demand growth, it is reflected in growth in the index. For the first five months of 2015, the index was a mirror of the downward trend of the Canadian economy. But in June it showed its first sign of life climbing back into growth. July was the same (and the optimist in me will choose to ignore the fact July’s growth was not as strong as June’s). If we get one more month of growth in the index, it’s hard to see how this could be a long recession. GDP itself grew in June by a healthy amount, perhaps indicating the economy is ready to bounce back.

Take what Carlos Gomes, senior economist with Scotiabank, had to say: “If you look at domestic activity, it remains very resilient. Consumer spending is doing well. Auto sales are at record highs. Housing activity is buoyant. Employment conditions have actually accelerated over the past year to about an average of 16,000 jobs created each month. That’s a significant improvement from an average of about 10,000 during the previous two years. One part of the economy is doing well, however, there is significant weakness on both the business investment side and the export side.”

Interestingly enough it is that lack of investment that can derail the Canadian economy for good. If at the first sniff of an economic downturn we essentially go on an investment strike – cancelling equipment renewal plans, laying off drivers, etc. – in anticipation that future demand won’t be there, we end up being directly involved in creating the very downturn we fear. I think a wiser approach would be to cautiously proceed with investment plans, keeping in mind that economies growing at less than 3% GDP are bound to run into several bumps in the road, some more pronounced than others. It’s also important to remember that GDP figures, although they get a lot of attention in the media, are a look back to where we’ve been, not a look ahead to where we are going.

And finally, as I mentioned at the recent Altruck Customer Connect event when speaking on this subject, you didn’t get to running your own company without trusting your gut. Listen to it now. We’ve been in recession for two quarters. Does it really feel like it did during the depths of the last one?

It will take some forward thinking indeed to take the leap of faith during the economic downturn and stay true to
investment plans. But that’s exactly the action that will keep us from a prolonged recession.

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