Financial Update for Jan. 27,2009

On the day where Canada is will be opening up the spending taps in a huge way, massive layoffs took place south of the border. Will the governments budget get people back to work, or stem the potential layoffs above the 49th parallel? Will the Liberals throw their support or join forces with the NDP. For those of you that like politics, this should be a couple of interesting days ahead. Enjoy……

· TSX +28.54 to 8656.51
· DOW +38.47 to 8116.03
· Dollar 0.8186 USD
· Oil +.27 to $46.00 per barrel.
· Gold -4.20 904.60 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Budget's impact to be instrumental in nature of Canada's economic recovery

Mon Jan 26, 5:46 PMJulian Beltrame, The Canadian Press

By Julian Beltrame, The Canadian Press

OTTAWA - How quickly and strongly Canada's economy rebounds from the worst slump in almost two decades could come down to a few lines in Tuesday's federal budget and their execution, economists say.

Last week, Bank of Canada governor Mark Carney presented a rosy picture of the recovery with Canada bouncing back strongly next year.

But Carney had a significant caveat. He was assuming massive and effective stimulus in the United Sates and in Canada to make his sunny prediction work.

All indicators, particularly the Canadian government's own projection of $64 billion in deficits over the next two fiscal years, point to massive stimulus, likely split between spending and tax cuts.

"No single move is perfect, no single move does everything economists want it to do, so maybe the best plan is to sprinkle it among a couple of different areas and that's what it looks like they will do between infrastructure, worker retraining and some kind of tax relief," said Douglas Porter, deputy chief economist with BMO Capital Markets.

Based on the surprising flood of spending announcements that have been released before the budget - the latest being Monday's $7 billion for infrastructure - economist Dale Orr believes stimulus spending of $19 billion in 2009-10 fiscal year and $15 next fiscal year.

The deficits will be even larger due to a sharp drop in revenue flowing into the government's coffers because of the downturn.

Most economists view spending on job-intensive infrastructure projects as among the most effective ways to stimulate the economy short term, and praised Monday's announcement.

In a paper released separately, Benjamin Tal of CIBC World Markets estimated that $10 billion in infrastructure spending is ready to go this year and could potentially create 110,000 jobs, while boosting the country's gross domestic product by 1.5 per cent.

Along with the $6 billion of unspent infrastructure projects Ottawa already has in the pipeline from previous years - the added commitment, along with provincial and municipal participation - would put that figure well beyond $10 billion.

"Given the fact we are running a huge infrastructure deficit, I think it's a huge win-win situation," said Tal. "We have to face it, what we are doing now is buying jobs and infrastructure has a much higher multiplier in terms of creating jobs."

But the spending commitments announced still leave Ottawa with about $10 billion to play with in the budget, some or most in the form of tax cuts.

In a brief scrum, Finance Minister Jim Flaherty said the budget will aim "to stimulate the economy, (encourage people to) buy Canadian, and take some steps to protect Canadians tomorrow."

Earlier Monday, the Canadian Manufacturers and Exporters association called for the budget to address the issues of business credit and liquidity and to make adjustments to the tax system.

A monthly survey of manufacturers conducted for the CME indicated that there has been a deterioration in the number of new orders they're getting in the early days of 2009.

The survey found 21 per cent of the respondents said the value of their orders in early Janaury fell by more than 30 per cent compared with October - putting one-fifth of the 379 respondents in the weakest category.
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Some key spending measures the Harper government has signalled for Tuesday's budget:

-$4 billion over two years for ready-to-go provincial and municipal infrastructure projects, including roads, bridges and sewers.

-$2 billion for repairs, maintenance and construction at colleges and universities.

-$1 billion for "green" infrastructure.

-$2 billion for housing.

-$1.5 billion to retrain workers.

-$1 billion to help single-industry towns.

-$500 million for agriculture.

-$150 million for forestry.

-Billions of dollars in loan guarantees for the auto industry.

More than 75,000 jobs lost in corporate carnage

Blue chips in U.S., Europe rein in costs

Janet Whitman, Financial Post Published: Monday, January 26, 2009

NEW YORK – Marking one of the most brutal days in corporate history, big American and European companies Monday slashed more than 75,000 jobs.

The massive layoffs come as companies across practically every industry – from banking to cellphones, retail, cars and heavy equipment – struggle to rein in costs and stay afloat as the worldwide recession deepens.

Economists said they don't see any end to the bloodletting until well into 2010.

"Unfortunately with the outlook still so grim for the economy, they are going after the biggest expense on their books, which is labour," said Bernard Baumohl, chief global economist with the Economic Outlook Group. "It's not a good omen for the economy. It means more people will be out of work and there will be less income available to spend by consumers."

The headline-grabbing pink slips by several blue-chip names started in Europe, with electronics maker Philips laying off 6,000 jobs as it sank into the red for the first time since 2003, while banking giant ING plans to trim its workforce by 7,000.

In the United States, Monday's cuts were no less harsh, with 7,000 planned at D.I.Y. chain Home Depot; 8,000 at No. 3 cellphone provider Sprint Nextel Corp.; 2000 at automaker General Motors; 3,400 at semiconductor company Texas Instruments; and as many as 19,000 by Pfizer Inc. as part of the pharmaceutical behemoth's US$68-billion takeover of rival Wyeth.

The largest layoffs came from Caterpillar Inc., which plans to reduce its workforce by 20,000 as global demand for construction and mining equipment sinks.

Referring to the wave of layoffs Monday in Washington, D.C., U.S. President Barack Obama urged swift passage of an US$825-billion package of spending and tax cuts that's aimed at helping bring the sputtering U.S. economy out of its recession.

"These are not just numbers on a page," Mr. Obama said. "As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold."

Caterpillar's job cuts sent a particularly grim signal about the global economic outlook given that Peoria, Ill., company is poised to get a big boost from the U.S. stimulous package, which is heavy on infrastructure spending.

Economists said the latest round layoffs add to a picture that was already gloomy.

"These are high-profile big names with big round numbers so they grab headlines," said Joshua Shapiro, chief U.S. economist with MFR Inc. in New York. "What's more important is that over the past several months, small and medium size companies have been slashing right and left.

That's where the growth has been. Large companies haven't really been in adding much in years."

Although the United States is expected to start pulling out of its recession in mid-2009, workforce reductions are likely to persist into 2010, economists said.

"The problem is that employers are not aware when an economy turns around," said Mr. Baumohl of the Global Economic Outlook Group. "They don't know whether it's a slight improvement or a temporary improvement so they will likely hold off on any hiring until well into 2010 and 2011 when they're convinced the recovery is the real thing."

Economists aren't predicting that U.S. unemployment, which now stands at a little more than 7%, will get anywhere near the 25% rate during the Dirty Thirties.

But they do expect it to keep climbing, with some seeing it peaking above 10% in 2010. That would mark America's first double-digit unemployment rate since the double-dip recession in the early 1980s.

In a sign of the pain ahead, a survey released Monday showed that nearly half of U.S. employers have been avoiding layoffs in favour of other cost-cutting measures, such as freezing salaries and implementing forced vacations.

According to the survey, released by global headhunting firm Challenger, Gray & Christmas, Inc., 92% of companies have initiated some sort of cost-curbing measures.

The most frequently employed cost-control initiative was reducing travel expenses, which was cited by 67% of those surveyed. Hiring freezes followed at 58%, while only 56% said they were resorting to permanent workforce reductions.

Pfizer's acquisition of Wyeth highlights the tremendous pressure on corporate chieftains to rein in costs and could be a sign of many more layoffs to come as industries consolidate to fight against the economic downturn.

"With excess capacity out there just about everywhere and stock prices depressed, we're going to see more opportunistic mergers where, clearly, the goal is to try to reduce costs," said Mr. Shapiro of MFR. "Most of that cost is labour."