Canadians Hang on to Their Fridges, ‘Beaters,’ in Slow Recovery

By Greg Quinn and Andy Burt

Nov. 11 (Bloomberg) -- Customers in Ben Miller’s appliance shop are choosing to repair, not replace, their aging fridges and dishwashers, forcing the British Columbia salesman to ignore the wear on his own pickup truck.

Canada’s recovery from its first recession since 1992 has been hit by drops in output, employment and prices, surprising economists. Estimates for third-quarter growth were cut to 1.4 percent from 2 percent last month, according to the median of 16 estimates in a Bloomberg survey released today.

Slower-than-expected growth may prompt Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney to prolong some stimulus efforts, which include record budget deficits, targeted tax breaks and near-zero interest rates, until consumers resume spending.

Two days into last week, Miller said he had sold only two new appliances, while the shop’s repair technicians were constantly “booked” as clients chose to spend C$250 ($238) to fix a dishwasher that sells for C$550 new.

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, strengthened 0.6 percent to C$1.0495 per U.S. dollar yesterday.

Repair Work

“Most people are willing to repair rather than buy new because they don’t have the money,” Miller, 34, said at Moore Appliance Ltd. in Prince George, British Columbia, in front of a storeroom stocked with touch-up paint and valves. “My red beater truck I know needs C$2,000 of repairs,” he said, though slow sales prevent him from getting the work done.

Economists are trimming forecasts following reports that output shrank 0.1 percent in August after it was little changed in July, and data showing consumer prices have fallen for the longest stretch since 1953. Last week, Statistics Canada said employment dropped by 43,200 in October following two monthly gains, lifting the jobless rate to 8.6 percent, almost an 11- year high.

Flaherty didn’t wait for the jobs report to warn Canadians the labor market won’t return to normal for some time. “We need to have a clear entrenched economic recovery and then the job numbers will have to catch up with that as businesses start to reinvest,” he told reporters Nov. 5.

With consumers reluctant to spend, discretionary stocks have lagged behind a 27 percent rise in the country’s benchmark Standard & Poor’s/TSX Composite Index this year, gaining 7 percent. Consumer-staples stocks have fallen 0.2 percent, ahead of only the telecommunications services index drop of 3.1 percent.

Luring Shoppers

To lure consumers back into stores, Flaherty has introduced temporary tax credits for home renovations. Customers at Home Depot are more drawn to items that will get them a tax break, said Michael Rowe, chief financial officer of the building- product retailer’s Canadian unit.

“We do see a difference between those that are eligible and those that are not,” Rowe said in an interview in Ottawa. The Atlanta-based firm is opening three stores in Canada this year instead of the 10 they added last year.

While sales at furniture and electronics stores have stopped falling, they remain 9.3 percent below pre-recession levels, according to Statistics Canada.

Consumers are central to the Bank of Canada’s forecast for next year, with consumption pegged to account for more than half of a 3 percent expansion. To support that growth, Carney cut the bank’s benchmark interest rate to a record low 0.25 percent in April and has pledged to keep it there through June 2010 unless the inflation outlook shifts.

‘Softer’ Recovery

Carney said last weekend that third-quarter growth may come in “softer” than a prediction for a 2 percent annualized pace he made two weeks earlier, adding the “profile” for recovery remains intact.

Carney has also warned the recovery depends on a “difficult handoff from public- to private-led growth.”

“There is going to be a degree of turbulence with that handoff,” said Stewart Hall, an economist at HSBC Securities in Toronto. Hall says that Carney will keep the benchmark rate at 0.25 percent for at least three months after the bank’s conditional promise expires.

Flaherty has also forecast a record C$55.9 billion deficit this year, aiming to stimulate the economy with infrastructure spending and increased jobless benefits.

For Miller in British Columbia, the closing of local lumber mills has a bigger effect than even the province’s spending on infrastructure for the Olympic Games in Vancouver next year.

“Some people say the Olympics has an effect; not up here,” he said. “When the economy is strong, people buy new.”

To contact the reporters on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net; Andy Burt in Washington at aburt1@bloomberg.net.