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A new report from CIBC World Markets indicates that business bankruptcies were declining as of March, however, personal bankruptcies had increased.

This trend differs with what’s happening in the U.S., where business and personal bankruptcies continue to increase, and also with the trends from the previous recessions when business bankruptcies reached record highs.

During the year ending March 2009, the total number of business bankruptcies in Canada fell by a surprising 4.4% compared with the previous year.

Benjamin Tal, senior economist with CIBC and author of the report, attributes the Canadian trend to the fact that there is more downsizing than plant closures.

“This abnormality suggests that, at least for now, downsizing as opposed to broadly-based plant closures, is what defines the response of many Canadian firms to the current economic recession,” he explains. “If sustained, this response will have significant implications for the nature and speed of the recovery in the job market.”

He adds that the distinction between Canada’s approach to the economic downturn and that of the U.S. will affect each country’s recovery in the job market. “This distinction is important since re-hiring by downsized but existing companies during the recovery can occur much faster than hiring by new firms. So, as opposed to previous recoveries, this time around we may not have to wait for business bankruptcies to recover before we see employment rising again,” Tal says.

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Caisse defends accounting principles

In a forthcoming book entitled La Caisse dans tous ses états, the author makes suggestions that the Caisse de dépôt et placement du Québec financial statements have been subject to accounting manipulation and that a number of assets, notably Vidéotron, were considerably depreciated at the end of 2002 in order to improve results in subsequent years.

However, the Caisse has noted that its financial statements are correct, confirming that its investments are evaluated through a rigorous audited process.

According to the pension fund, all financial statements are prepared according to Canada’s generally accepted accounting principles (GAAP) and that the cumulative annual financial statements and the annual statements for specialized portfolios and depositors’ funds are audited by the auditor general of Quebec.

As well, when calculating returns, the Caisse complies with the Global Investment Performance Standards and obtains a report from an independent auditor.

The Caisse has informed Quebec’s auditor general of these allegations and has pointed out that in February 2006, La Presse published a retraction after making similar allegations.

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CMHC predicts housing start decline in 2009

The Canada Mortgage and Housing Corporation (CMHC) forecasts a decrease in housing starts for 2009 in Atlantic Canada but expects a slight improvement in this for 2010.

For 2009, prices will remain slightly positive in Atlantic Canada and rise by 2.5 % in 2010.

“The housing sector is expected to show positive growth in 2010, as consumers continue to take advantage of the favourable interest rate environment and as a recovery begins to take hold, due in part to additional fiscal and monetary stimulus,” says Alex MacDonald, regional economist, with CMHC’s Atlantic business centre.

Though housing starts are expected to decline in 2009, row housing remains popular in some urban centres across Atlantic Canada as some consumers are moving away from more costly, single-detached units.

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Participants in 401(k) accounts need to make up shortfalls

The experience of sustaining record losses in their 401(k) savings in 2008 have not led many U.S. workers to make changes to their savings and investing habits, according to study by Hewitt Associates.

Still, not all workers have ignored the market’s downward slide — employee investments in equity fund allocations were at record lows last year.

Hewitt’s annual Universe Benchmarks study, which examines the saving and investment behaviors of more than 2.7 million employees eligible for 401(k) plans, shows that the median rate of return during 2008 was negative 28.3%. The average 401(k) balance dropped from $79,600 in 2007 to $57,200 at the end of 2008.

“Whether it’s faith in the 401(k) system, inertia or both, most employees continued to save for retirement amid the tightening economy,” says Pamela Hess, director of retirement research with Hewitt Associates.

To make up for the losses that were sustained, she recommends that investors be proactive about their savings by investing in the right mix of funds, rebalancing periodically and getting financial help and advice to be certain they are invested appropriately.

(05/19/09)