Winnipeg Free Press - PRINT EDITION

Optimism rears its timid head

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Have you noticed that almost everyone you talk to has had the most enjoyable winter and Christmas holiday they can remember? While my straw poll of the personal enjoyment factor may not represent a feeling throughout the population, I think it does.

In part, it has to do with a holiday period that spans two weekends. Other than bargain hunters for Boxing Week sales, the business world pretty much shut down and most people didn't get back to work until Tuesday this week.

The relatively long break has done wonders for morale. While Canada has not suffered from the deep, long recession in the same way as the United States, worry about the economy south of the border resulted in cautious business and personal spending during most of 2010.

There was too much uncertainty at the beginning of last year for a really relaxed and optimistic feeling about the coming 12 months. Going into 2011, the long break and the realization that 2010 wasn't so bad as it could have been have changed the overall mood.

The worries are still out there. European economies are suffering under a mountain of debt that could threaten the stability of international banks.In the United States, home prices and home sales continue to be depressed. Unemployment remains above nine per cent and the government's budgetary deficits are at record levels.

But while all of the negative news matters, it doesn't seem to matter enough to prevent a rising tide of hope that the worst is behind us and that 2011 will see a much better, more robust economy in Canada and possibly south of the border as well.

Estimates suggest that holiday retail sales in both Canada and the U.S. were up about four per cent on a year earlier and that December retail sales in the U.S. were growing at the fastest rate since 2006. To put that in perspective -- that's the fastest growth since the U.S. "subprime" mortgage collapse began in 2007.

It means that Americans shrugged off worries about losing their jobs, forgot that their most important asset -- their homes -- had lost value and went out and bought items like jewelry that may not wash clothes but make you feel good.

Feeling good is what countries need in order to improve their economies. Recessions don't end because economists, policy makers and business people decide they should end, they end because mass psychology changes. If people fear that their jobs are at risk or their mortgages may be higher than the value of their home, they become cautious. They save more, spend less and the downturn feeds on itself. At some point, those fears subside. Subtle changes spread so that people feel that their future is no longer so bleak. I think that in North America that switch is happening now. The jerky improvements in the U.S. and Canadian economies in 2010 were just enough. People have become weary of gloom. The long holiday break helped. Not even the snow that swept the Northeast prevented people from having a good time.

Businesses are spending on advertising again. A sure sign that they think better times are coming. The growing optimism has led U.S. manufacturing industries to ramp up activity. In the U.S., the Institute of Supply Management reported that manufacturing in December grew at the fastest pace in seven months.

This kind of change is contagious. Manufacturers that increase production will eventually hire more people who then have more money to spend. The weakness of the U.S. dollar means that spending is more likely to be on American-made goods, which, at the same time, are more competitive to export.

The rise of the Canadian dollar will tempt Canadians to spend more in the United States -- a challenge for our own retailers. It will also make our manufacturing more expensive south of the border. But it helps grow profits from our resources that are priced in U.S. dollars and our manufacturers have learned to be far more competitive than they were a decade ago.

Until very recently, I have been more pessimistic about the immediate economic future that most. The European debt situation, in particular, made me very worried. But, I think there are more reasons to feel optimistic about 2011 than can be accounted for by a seasonal holiday stretching across two weekends. Caution is still appropriate, but the psychology feels different.

Nicholas Hirst is CEO of Winnipeg-based television and film producer Original Pictures Inc.

Republished from the Winnipeg Free Press print edition January 6, 2011 A11

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