Budget Won't Include New Spending or Tax Measures

Home renovation

Fred Lum/The Globe and Mail

Focus for 2010 will be on long-term reduction of deficit, which means measures such as the popular home renovation tax credit will not be making a return, government official says


Bill Curry and Campbell Clark

Ottawa — From Tuesday's Globe and Mail Published on Monday, Feb. 22, 2010 4:23PM EST Last updated on Tuesday, Feb. 23, 2010 9:00AM EST

The Conservative government will unveil a budget without a single new tax or spending measure for 2010, and will instead shift the focus to the longer-term plan to cut the deficit starting next year.

The stand-pat budget means that the popular Home Renovation Tax Credit, which allowed homeowners to claim up to $1,000 on their income tax but expired Feb. 1, won't be extended. The fiscal plans for 2010 outlined in last year's recession budget, including $19-billion in stimulus spending, will go ahead.

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But when the year of spending is over, a long budget squeeze will start in 2011. And even the military, which has received rapid funding increases under the Conservatives, will face restraint, according to a senior official who briefed the media Monday.

The real story of the March 4 budget promises to be an outline of the multi-year plans starting in 2011 to reduce record deficits by curbing growth in every area of federal spending except health care, education and public pension plans such as the CPP.

With Parliament prorogued for weeks, Prime Minister Stephen Harper and Finance Minister Jim Flaherty met with community leaders for budget ideas. Some of that advice, supported by opposition MPs, included calls for new job-creation programs.

And while the government official said Mr. Harper and Mr. Flaherty have not completed all work on the budget, he signalled those calls for new spending in 2010 will be unheeded.

“I don't anticipate any new measures in this budget,” the official said in Ottawa.

The Tories will, in effect, present a turning-point budget.

They say that the economy and job-growth are still fragile, so Ottawa must continue with the promised second year of stimulus spending but show a plan for ensuring the deficit will be reined in later.

“Now is not the time to change that course. But it is time to begin looking down the road to major challenges,” the official said.

Members of Parliament begin a new session of Parliament next Wednesday with a Throne Speech and a federal budget the next day. The House of Commons was scheduled to return on Jan. 25, but the Prime Minister's Office prorogued Parliament on Dec. 29 to allow the government to “recalibrate” its agenda.

Members of the opposition say their skepticism of the government's reasons for proroguing Parliament will be justified if the budget contains no new measures.

“The central claim of the Prime Minister was that he needed all of this time to prepare for this historic budget and that's why he prorogued, and now we're told there'll be nothing in the budget,” said Liberal MP and finance critic John McCallum. “So I think that proves that this excuse for prorogation was not the reality.”

The new feature, however, will be the multi-year plan for reducing the deficit by restraining the rate of growth in government spending. Only health care, education and public pensions like the CPP – fast-growing areas of federal spending – will be allowed to grow at currently projected rates.

Those exemptions will put a particularly tight squeeze on what's left: a $100-billion annual program budget, of which the military makes up nearly one-fifth.

The government has already asked public-sector unions for suggestions on scaling back the $35-billion spent annually on federal salaries and pensions. But yesterday's briefing confirmed the defence budget – which has grown by 8 per cent a year since 2000 – is not on the exempt list.

When asked if defence spending will be restrained, the government official stressed that everything but health care, education and pensions will be curbed. But he did not specify whether the $1-billion in annual special funds for the Afghanistan mission, which ends in 2011, will be rolled back into the military or cut.

NDP finance critic Thomas Mulcair said the budget briefing makes a mockery of the traditional process in which the budget is kept secret and MPs and journalists see it under embargo the day it is read in the House of Commons.

“It shows the continuation of the lack of respect of our Parliamentary institutions,” he said.

Budget Won't Include New Spending or Tax Measures

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Ottawa to impose new rules on first-time home buyers

Monday Feb. 15, 2010 4:15 PM PT

Ottawa is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada's hot housing marking.

Sources tell The Canadian Press that Finance Minister Jim Flaherty is ready to make changes because of concern Canadians may be taking on too much debt.

Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.

Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.

But bank officials say they usually apply a cushion to ensure home buyers earn enough money to meet payment requirements if floating rates rise.

Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.

It's probably time to start the countdown on interest rates going up

By Garry Marr, Financial PostFebruary 13, 2010

Benjamin Tal expects people to lock in their rates very soon.

Photograph by: Peter Redman, The National Post, Financial Post

The Bank of Canada only pledged -- conditionally -- to keep its record-low lending rate until the end of the second quarter, so that leaves us with slightly more than four months before the housing market falls apart. At least that's what some national magazines and economists predict will happen when rates start to rise.

"Some people say they could go up in April, but I don't buy that," says Benjamin Tal, senior economist with CIBC World Markets and one of the more sane voices out there. He predicts a pullback in housing, but not the collapse we've seen in the United States.

So, what do you do in the face of this inevitable march of the interest-rate hikes coming our way, likely at the Bank of Canada's first meeting in July?

"I think people will start locking in their rates very soon and that's already happening," says Mr. Tal, referring to the variable-rate crowd that has mortgages tied to prime. "The five-year [fixed] rate [mortgage] will be moving [up] well ahead of the bank rate in anticipation of an increase."

While locking in is extremely tempting in this market -- given a five-year mortgage is as low as 3.8% -- a floating-rate mortgage can be had for almost half that. Vince Gaetano, a vice-president of Monster Mortgage, said he's seeing variable rates for as low 30 points off prime, or 1.95%.

The problem for many Canadians who negotiated variable-rate mortgages in the past year and still don't want to lock in, is they are stuck in contracts that have them paying a rate as much as 100 basis points (one percentage point) above prime. The reason they call it a five-year term is because that's the length of the contract.

But Mr. Gaetano says just break that mortgage. If you are in a variable-rate contract, the penalty is three payments. To go from a contract that is 100 basis points above prime to one that is 30 points below, could have you recoup your money in less than a year.

"There is a large amount of people refinancing to take advantage of these variable rates. We've seen a full-point comeback in the borrower's favour. We'll never see 1.95% ever again," says Mr. Gaetano.

One option for consumers who can't make up their minds is to apply to the bank for a new mortgage and have the financial institution hold the rate for as much 120 days.

"There will be a credit bureau check on your name and it could lower your credit score if you don't use money," says Mr. Gaetano, referring to the potential pitfalls of looking elsewhere for a new rate.

The reality is most consumers, once they have their mortgage, stay put and wait for renewal. The banks have a loyalty record that would make any industry drool. According to the Canadian Association of Accredited Mortgage Professionals, 93% of borrowers who renew on schedule stay with the same lender. Even among those who renew early, 81% stay with same financial institution.

As you consider where to go next with your mortgage, you should remain open to switching financial institutions if it saves you money. Sometimes there are costs, but the potential savings from a better rate can offset those costs.

Martin Beaudry, vice-president of ING Direct Canada, says his company will now hold your rate for 120 days by just applying online. You don't even need to fill out a full mortgage application. ING holds the rate on any term, or even the spread between a variable-rate and prime, which is now 20 basis points.

"There is no downside, but less than half of people take advantage of rate guarantees. People deal with renewals less than 30 days before the maturity date," says Mr. Beaudry.

Most banks will guarantee you a rate 90 days in advance of your mortgage coming due. Why wait until the last minute and why stay with same institution, if you are not getting the best rate going?

- Dusty wallet Having trouble making ends meet because of property taxes? If you are a senior citizen, some jurisdictions will allow you to forgo the payments with the amount owing attached as a lien on the house. Make sure to check the interest rate they charge, or your heirs could be left with a lot less house -- if you care about that.

CREA forecasts record home market this year

Garry Marr, Financial Post

Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.

The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.

The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.

Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.

"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.

There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.

Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.

Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.

That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.

"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.

Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.

"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"

Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."

Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.

"I think leaving it at 5% would be okay," Mr. Ash said.

Don’t bite off more mortgage than you can chew

Garry Marr, Financial Post Published: Friday, January 22, 2010

The housing sector has been boosted by mortgage interest rates as low as 2.25%.

How much money do you really need to buy a house?

Based on the average sale price of $320,333 last year, the federal government says you must come up with about $16,000 before you can consider getting a mortgage to buy the rest of that home.

Current rules require mortgage insurance for anyone borrowing more than 80% of the value of their home from financial institutions covered by the Bank Act. Under the rules, consumers must have at least 5% down and cannot amortize their payments over a period of more than 35 years.

Those stipulations came after Ottawa's supposed crackdown on the housing sector which had allowed zero down mortgages and 40-year amortizations.

Now, with the housing market red-hot again, there is talk about increasing the down payment requirement and shortening the amortization length back to 25 years. Jim Flaherty, the Finance Minister, has said he is keeping a close eye on the sector, which has been boosted by interest rates that have new mortgages being offered as low as 2.25%.

It shouldn't come as any surprise that the real estate community is fighting against changes that would make it harder to buy a home. This month, the Canadian Association of Accredited Mortgage Professionals (CAAMP) produced a study it says shows an overwhelming percentage of Canadians are shielded from potential interest rate hikes because they opted for fixed-rate products.

But that study also showed a huge portion of those consumers would be in big trouble if they had to come up with a larger down payment. Will Dunning, chief economist for CAAMP, said 65% had down payments that were worth 10% or less of the value of the home being bought.

"Absolutely," says Mr. Dunning, about whether a change would take some consumers out of the market. "The change in the 40-year amortization just worsened the downturn in the market. In a fragile housing market you don't want to impose too many restraints."

Ben Myers, executive vice-president of Urbanation Inc., which tracks Toronto's condominium market, has little doubt about what would happen if consumers were forced to come up with more cash up front.

"A large percentage of the market is investors and first-time buyers and they are very sensitive to the down payment they need and the amortization because it affects their monthly payment," says Mr. Myers.

From an industry standpoint, the status quo is easy to defend. The delinquency rate - defined as loans more than 90 days behind - is only 0.45% of the market. That's well below the 0.70% high reached in the last recession.

Derek Holt, an economist with Bank of Nova Scotia, wonders whether the industry is borrowing customers from tomorrow to fuel today's market.

"We are overheating at the expense of bringing forward future buyers. The risk here is you wind up a year or two down the round with a demand vacuum," says Mr. Holt. "Sure, if you tighten the rules you cool demand, but you distribute demand more evenly."

Basically, people would save a little longer or perhaps buy a little less house.

Taking a more conservative approach to buying is not the worst thing that can happen, says Julie Jaggernath, director of education at the Vancouver-based Credit Counselling Society. More than one person has walked into her agency with credit problems caused by taking on too much house.

"They might buy a home with a smallish down payment but then they furnish it on their credit card," said Ms. Jaggernath. "It is not unusual to see people spending 60% of their net income on housing costs."

She suggests looking at your current housing and then doing the math on what your housing costs would be for what you want to buy. "Set the difference aside for six months and see if you can make that budget," says Ms. Jaggernath.

Her group is anticipating a larger client base when interest rates rise because many consumers are now biting off more mortgage than they can chew.

"Some people want to travel to Mexico three times a year but they can't. Some people should never buy a home," says Ms. Jaggernath.

It's too bad we can't go on vacation with 5% down and pay for it over the next 35 years. There would be a lot of Canadians lying on a Mexican beach right now.

Dusty wallet Watch those credit card statements closely. DW paid his Visa on time last month with an online transaction. The due date was Jan. 2, but the bank didn't put it through until Jan. 5. Guess what? The three-day delay by Visa resulted in almost $60 in interest charges - since reversed by the financial institution in question.

Housing market continues slow recovery

by Contributed - Story: 52503
Feb 5, 2010 / 12:00 pm

The Central Zone of the Okanagan Mainline Real Estate Board reported January 2010 sales activity of all MLS property types improved over 2008 and the early part of 2009 as the market continues to recover slowly but steadily.

“We are pleased to see a strong start to the New Year in the Central Okanagan as sales activity remains relatively strong and an increase in listings provides more choice for Buyers,” says Brenda Moshansky, OMREB Director and realtor in the Central Zone.

“While inventory is down 11% from last January (4,120 units compared to 4,648), the 1,021 new listings taken rose slightly (15%) from the 884 last year but increased significantly (94%) over the 525 in December.”

Total sales of 252 units jumped 123% last month from the 113 sold in January 2009 and eased slightly (5%) from the 241 sold in December.

Residential units sold showed a 100% improvement over last year at this time (219 from 109) – a 2% increase from last month (214).

Sales of single family units were up 121% over last January (122 from 55) – a 12% increase from December (109). Townhouse and apartment sales improved 92% (25 townhouses sold compared to 13) and 75% (49 apartments from 28) over January 2009.

“With the market looking more positive compared to this time in 2009, we look forward to more balanced conditions in the months to come."

She says low mortgage interest rates and lower home prices than before the downturn will continue to spur first-time buyers.

"We are hopeful that the upcoming Winter Games could provide a golden opportunity for the Okanagan to attract the attention of Olympic visitors and potential buyers to consider investment and recreation property here instead of the Lower Mainland where prices are at an all-time high.”

Drowning in debt? Seek advice and take action

Film industry worker credits Women's Financial Learning Centre with spurring her to take control of her cash and get back in the black

By Erin Ellis, Vancouver SunJanuary 15, 2010

Costume coordinator Janice DeVries was able to dig herself out of personal debt with the help of the Women's Financial Learning Centre. Now she offers financial advice to other folks working in Vancouver's turbulent film industry.

Photograph by: Jason Payne, PNG, Vancouver Sun

Take action today and don't look back.

That's the advice Janice DeVries would give anyone who wants to take a first step to getting out of debt. She found herself mired in about $40,000 of back taxes and credit card debt 11 years ago at the end of her marriage, shocked to learn how much had been charged on joint credit cards originally taken out in her name. But instead of taking action, she ignored the bills and stewed in regrets.

"Because it was all tied up in all the ugly emotional stuff, all the boxes went into the spare bedroom and I closed the spare bedroom door. It was too painful emotionally to poke around in that stuff."

Now, she says, "I would not get bogged down in, 'How could I have let this happen?'"

DeVries counts herself among the lucky ones because, at 43, she has a two-decade long career as a costume supervisor in Vancouver's film industry, including lengthier contracts with series like MacGyver. That's provided her with the earning power to tackle debt -something that's significantly more difficult for people who work less. And the sale of her marital home provided the down payment for the condominium she now lives in. DeVries says she never considered bankruptcy because of her steady income and equity in a home.

Her first move was to finally take a realistic look at the financial mess, opening letters and bills she'd ignored. Then she made a repayment plan, starting with the highest interest charges first -- almost always credit cards -- and worked her way down the list.

She eventually cleared out other accumulations by getting rid of expensive storage lockers that kept expanding to contain materials for her work.

The process took years and she advises patience. One of the biggest challenges now is to find the time to keep on top of other financial choices like buying the best phone plan, finding a better mortgage rate or simply checking all banking statements and bills thoroughly.

She's now facing a whopping $24,000 special assessment as her part of a new roof for her condo complex in Richmond. That's setting back her plans to clear a line of credit and save for travel, but she doesn't feel it's

For RELATED STOR IES GO TO

Vancouversun.com/MoneyWatch

enough to derail her progress.

Money problems are rife in the film business, she says, where workers can make loads of money in a few months of working very long hours and then have to make it last the rest of the year. She also teaches seminars for Local 891 of the International Alliance of Theatrical Stage Employees, which represents technical staff on movie sets. She advises union members to budget for six months of work each year and bank any extra that may come in. But there's always the temptation to spend what you earn during the high-income months only to turn to a line of credit -- or worse, credit card cash advances -- in the lean months.

Her biggest support has been the Women's Financial Learning Centre, which she credits with spurring her to take action. The centre offers seminars and counselling on a fee-for-service basis, meaning clients pay for advice because there are no other products for sale.

"What appeals to me most about that is that it's not associated with any kind of sales. I find a lot of the financial information and education we get is associated with sales, so there are other motivations involved in that transaction. And also that they use language and an approach that I have found very comfortable as a woman. It's just a little different way of communicating. It's not aggressive. . . . My experience with financial stuff up to that point had been quite aggressive."

Buying into mutual funds or RRSPs, for instance, won't help a film production assistant who'll end up cashing them in when there's no work and paying a penalty to so do, she says.

Her new approach focuses on goals and how to get there, rather than taking an "I can't afford to" approach.

"It's not about what I can't do. It's what I choose to do."

eellis@vancouversun.com

---

• RECOMMENDED RESOURCES:

Janice DeVries says a new attitude -not an adding machine -was the biggest boost to her debt-reduction strategies. Here are some of her recommended resources:

• Women's Financial Resource Centre, a Vancouver-based fee-only financial education service that offers seminars, personal counselling and tools like the Debt Free Challenge. www.womensfinanciallearning.ca;

phone:604-7165375

• Organizing from the Inside Out by Julie Morgenstern. In addition to step-by-step instructions for clearing out the clutter in all areas of your home, the author addresses the reasons we hold on to the stuff in our lives.

• Simplify Your Time: Stop Running and Start Living! by Marcia Ramsland. Helpful tips to organize your life, including a plan for a personal organizing.

• It's All Too Much: An Easy Plan for Living a Richer Life with Less Stuff by Peter Walsh. The declutter specialist from Clean Sweep on the TLC channel believes people block their own personal progress if they are overwhelmed by too many possessions.

Flaherty urged to keep spending taps open
Jeremy Torobin and Tavia Grant

Ottawa, Toronto — Globe and Mail Update Published on Monday, Feb. 01, 2010 8:15PM EST Last updated on Tuesday, Feb. 02, 2010 6:40AM EST

Canada's leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.

At a meeting in Ottawa on Tuesday, the economists will suggest Mr. Flaherty look past some of the better-than-expected data in Canada and the United States and resist moving too quickly to rein in the deficit.

The economists have boosted their projections for the economy, which Mr. Flaherty uses to shape his own assessments. They now see average economic growth of 2.7 per cent this year, according to a Bloomberg survey. That's higher than the 2.3 per cent Mr. Flaherty projected in his September fiscal update, but still well below the 5 per cent to 6 per cent that typically follows a deep slump.

“The dominant theme here is that unlike recoveries from previous recessions this one's going to be fairly slow and drawn out,” said Craig Alexander, deputy chief economist at Toronto-Dominion Bank. “I don't think the government should be tightening fiscal policy before the recovery has gained greater traction.”

In the U.S., President Barack Obama is facing intense political pressure to start taming a deficit on track to reach a record $1.6-trillion (U.S.), even as a stubbornly high unemployment rate forced him to ask Congress on Monday for another $100-billion to create jobs.

Canada, by comparison, is in a better position to carefully talk about a plan for tackling the budget shortfall that the global downturn spawned. Mr. Flaherty and newly minted Treasury Board President Stockwell Day have said the budget will include a road map to bring the budget back into balance within five years.

Most Canadian economists say outlining such a strategy is a good idea, but caution against being too aggressive.

“Unless economic growth turns out to be significantly stronger than economists like myself are projecting, the recovery won't do enough to get back into a balanced budget,” TD's Mr. Alexander said. “The budget is an opportunity to lay out a framework for what you try to do over a five-year horizon, and in that context there's a perfectly good opportunity to outline how you intend to, after the economy's gained significant momentum, get back into a balanced budget.”

At the same time, some economists are so cautious in their outlook that they say it's premature to even talk about spending restraint. Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said that even if the Parliamentary Budget Officer's recent warnings come true and Canada faces a so-called structural deficit of up to $19-billion (Canadian) five years from now, the country's debt load wouldn't be rising at a pace that increases the ratio of debt to gross domestic product.

“We're not Greece, so we don't have to impose an austerity program while the economy's still weak, or even talk about it,” Mr. Shenfeld said. “There's lots of time to adjust fiscal policy if it turns out three or four years from now we're still running a modest deficit.”

The deficit spending, and when and how to refill the hole, will be the front-and-centre topic at today's meeting, said Michael Gregory, senior economist at BMO Nesbitt Burns, not least because of nagging concerns about the effect that an aging population and health-care costs will have on long-term growth, regardless of the economic slump.

Reports late last week on both sides of the border showed Canada's economy grew at a faster-than-anticipated 0.4-per-cent pace in November and that the U.S. economy expanded at an impressive 5.7-per-cent annual pace in the final three months of 2009. Still, although both numbers caused some forecasters to increase their estimates of Canada's growth in the fourth quarter, many economists are skeptical the U.S. can keep growing at anywhere near its October-through-December pace, most of which was attributed to companies replenishing depleted inventories.

In any case, growth in both Canada and the U.S. this year will be on the strength of billions in government stimulus measures, not to mention rock-bottom interest rates, so fiscal policy makers face the crucial task of timing their belt-tightening just right because it remains unclear when the private sector will see self-sustaining demand.

Deficit reduction is important, but governments will have to walk a tightrope in the next year, said Jay Myers president and chief executive officer of Canadian Manufacturers & Exporters, which is hosting Mr. Flaherty at a conference later Tuesday in Ottawa.

“The year of recovery is going to be much more challenging for federal and provincial governments than the year of recession,” Mr. Myers said. “They basically knew what they had to do in recession. It's much more challenging now, to make the right choices.”

The balance hinges on beginning to unwind the extraordinary spending while also encouraging investments in new technology, innovation, skills development and market diversification that help growth over the long haul, he said.

Other topics that might be raised Tuesday range from new housing regulations to learning to live with the strong dollar, said Sheryl King, head of economics at Merrill Lynch (Canada).

The Finance Minister warned last month he will step in if the white-hot home resale market continues to push prices higher by tightening the rules for borrowers, such as increasing minimum down payments and shortening the maximum length of mortgages.

Signs of recovery starting to sway the skeptical

Looks like a V shaped recovery afterall

Paul Vieira, Financial Post

OTTAWA -- Despite all the angst in financial markets over sovereign debt and the populist influence on banking reform proposals, the economies in the United States and Canada have chugged along the road to recovery at a pace that's surprising even the most skeptical of analysts.

Data released Friday indicate U.S. GDP grew in the fourth quarter, an estimated 5.7%, at its fastest pace in six years. Meanwhile in Canada, data show November growth was stronger than expected, at 0.4%, while revisions to September and October figures indicate the economy was much stronger than earlier thought.

"It couldn't have been that easy, could it?," asked Stewart Hall, economist at HSBC Securities Canada, who in previous notes had expressed caution about a slow, uneven recovery. "Yet charting out the month over month GDP looks an awful lot like a "V" shaped recovery."

Prior to the release of this data, markets had been consumed with worries in the aftermath of the financial crisis, be it the debt levels of industrialized countries; a slowdown in Chinese growth as Beijing looks to tighten credit conditions, and measures proposed by the U.S. White House that could scale back the size of U.S. banks, leading them in the meantime to restrict credit growth as given their uncertain future.

"One of the important lessons of the crisis was that it was often helpful to focus squarely on more comprehensible macro-cyclical dynamics than on the noise and complexity of these other areas," Dominic Wilson, director of global macro and markets research for Goldman Sachs, said in a note this week.

"The latest focus on the banks might inadvertently restrict credit or tighten financial conditions in ways that do alter the macro path. But we think it makes sense to stay more focused on the economic news rather than shifting views too much on the basis of handicapping the twists and turns of possible legislation and the inevitable news from Washington."

As for the nuts and bolts of the data, analysts had mixed views.

In the U.S., economists at Capital Economics argued the big estimated headline gain was largely due to inventory rebuilding – hence, there's some skepticism that will kickstart a self-sustaining recovery.

But Dawn Desjardins, assistant chief economist at Royal Bank of Canada, said the U.S. data suggest "the consumer, after being in hiding the previous-six quarters, re-emerged in the second-half of 2009. ... This was a reflection of rising confidence that the recession was ending, the effect of government programs and a very low interest rate environment. Going forward, we expect that consumer spending will remain positive but that increases will be moderate as the hangover from the buying binge in previous years constrains activity."

It is not just the consumer. Business investment also surprised on the strong side, with growth of 2.9% after a 5.9% drop in the previous quarter. Investment in equipment and software jumped 13.3%, well above the 1.5% expansion in the third quarter. Net exports also added to U.S. GDP, in a sign that the country is beginning capitalize on its weaker currency and stellar productivity when it comes to trade.

In Canada, the surprisingly strong November data – and upward revisions to September and October – have economists indicating that the recovery is for real, with some now penciling in growth of at least 4% for the fourth quarter, or above the Bank of Canada's own projections. And remember, the central bank's forecast is at the upper end of market projections.

"This is one of the most convincing signs so far that the Canadian recovery is for real, and neatly dovetails with the robust U.S. GDP result," said Douglas Porter, deputy chief economist at BMO Capital Markets.