Trickle-down rate cuts don’t wash on Main Street

Source: The Globe and Mail, Wednesday, December 10, 2008

by JOE FRIESEN , DIANA MEHTA and WENDY STUECKTORONTO, VANCOUVER

Ted Szwec, a 49-year-old father of two, was unable to find work as an electrician for nearly three years in the recession of the early 1990s.

Now he’s seeing dozens of people reporting to the union office without jobs, and he expects worse to come. He’s cutting his spending by 25 per cent, and he isn’t expecting much help from the Bank of Canada’s decision to slash interest rates yesterday to their lowest level in 50 years. With real estate values also tumbling, consumer confidence is fragile.

“The Bank of Canada said today we’re in a full-blown recession. I guess the mitigating factor is interest rates are so low, but the liquidity hasn’t trickled down to Joe Blow on the street. We’re watching every nickel right now.”

Mr. Szwec, who works for the International Brotherhood of Electrical Workers, lives in the Newmarket-Aurora area north of Toronto. He said luxuries such as his annual trip to see the Toronto Maple Leafs from the nosebleed seats will have to be cut this year, and there will be fewer dinner and movie nights with his wife. When times are tough, the focus has to be on paying for his children’s sports teams and dance lessons, he added.

“There’s no doubt belts have to be tightened,” he said. “If we had any dreams about going south this year, that’s not going to happen. …We are cutting back, but our contributions to the food bank and charities will be bigger.”

Carrie Wallisch has learned a single hard truth from the dire economic news of recent months: No one buys flowers in a recession.

Ms. Wallisch runs a small florist business in Barrie, north of Toronto, and she can point to the day after Thanksgiving as the moment when Canada’s discretionary spending came to sudden, startling halt.
If it wasn’t for the funerals, she’d have no business at all, and it’s no good wishing for those, she says.
“It’s terrible. Just terrible,” she said. “Flowers are still a luxury, and if people are going to spend, they’re going to spend on the bigger picture.”

Ms. Wallisch, a 41-year-old mother of two whose husband is looking for work, adjusted her own spending plans as her revenues declined, anticipating months of bad times. She describes herself as a no-frills person to begin with, but her Christmas budget will be limited to $200 for the whole family this year.

But hard times can also bring attractive bargains. Ms. Wallisch seized on the uncertainty in the auto sector, and the possibility of a General Motors bankruptcy, to buy two GM vans at bargain prices in the past six months.

“… I was thinking with high gas prices in the summer I should get something small, but these deals were really good.”

Christopher Worswick, an economics professor at Carleton University, said Ottawa needs to reassure Canadians to get them to spend again.
“What kicks in is precautionary saving,” he said. “If you have a series of these negative shocks, people start thinking ‘Well, my future income may not be as good as my current income because I might get laid off.’ ”
The downturn in British Columbia’s housing market is welcome to prospective home buyers such as Ian Bruce, a climate-change specialist with the David Suzuki Foundation.
Mr. Bruce rents an apartment, but is keeping a close eye on real estate prices and mortgage rates.
“It gives us hope that at some stage, we could consider owning a home,” Mr. Bruce said, adding that he and his girlfriend have considered a preapproved mortgage to take advantage of low interest rates.