Bank of Canada Governor Mark Carney has economists, and perhaps the markets, trying to read between the lines again, if not scratching their collective heads.
The youthful central banker has made three public pronouncements in the past two weeks that have surprised listeners for their foreboding tone on economic developments, particularly since Mr. Carney is widely regarded as being in the glass-half-full crowd.
But just as many economists are pointing to signs of recovery - with the World Bank a notable exception - Mr. Carney has been warning about putting too much stock in so-called "green shoots" - the now-common catch phrase used to indicate the first signs of life in a moribund economy.
In recent speeches in Montreal and Regina, the bank governor was almost dismissive of indicators of economic improvement, warning that whatever good news existed was caused artificially by massive government and central bank stimulus. The private sector "is not there yet," he cautioned.
And in a report from an off-the-record speech Tuesday at the Woodrow Wilson International Centre for Scholars in Washington, Mr. Carney broke with official Ottawa dogma in declaring Canada's recession to be as deep as that in the U.S.
Bank officials refused to confirm or deny the remark, instead pointing to Mr. Carney's last official forecast in April, which indeed has Canada's gross domestic product shrinking by three per cent this year, as opposed to 2.4 per cent for the U.S.
"Nobody expects policy makers to be cheerleaders, but do they have to be naysayers?" asked Douglas Porter, deputy chief economist with the Bank of Montreal, who is among several who wonder at Mr. Carney's transformation from Mr. Sunshine to Dr. Gloom in four months.
"The Bank of Canada is one of the few forecasters in the world that sees Canada underperforming the U.S. this year," Mr. Porter notes.
But there's more. Mr. Carney is also in an exclusive club of economic forecasters that sees Canada rebounding from the bottom at twice the rate of the U.S. next year, a prognosis he was reported have repeated last week in Washington. Most see the two economies returning to slow growth of between 1.5 and two per cent next year.
As economists will readily admit, predicting how thousands of businesses and millions of consumers will behave next month or next year is part science and part black magic, particularly in volatile times such as these when stock markets appear to fluctuate wildly on the thinnest of premises.
And Mr. Carney has bristled in the past of criticism that he is too optimistic.
"We don't do optimism; we don't do pessimism," Mr. Carney responded in February over criticism of his rosy and now discarded 3.8 per cent growth call for the Canadian economy in 2010. "We do realism at the Bank of Canada."
One explanation, says economic consultant Dale Orr, who was among Canada's leading forecasters when he worked for Global Insight, is that Mr. Carney is overcompensating for his most widely criticized forecast in January.
Even former bank governor David Dodge dismissed as "unrealistic" notions that Canada would soon return to normal as if no fundamental damage had occurred.
Another, however, is that Mr. Carney is seeing dark clouds forming on the horizon and is setting the stage for yet another downward revision of his outlook.
"I think he's walking down the middle, not prepared to revise his forecast just yet but the tone is definitely shifted toward all the downside risk," said Derek Holt, vice president of economics with Scotia Capital.
"They (bank officials) are less convinced that the domestic fundamentals are looking as rosy as they were just a few months ago."
Mr. Carney has a long way south to go before he becomes as pessimistic in the numbers as he appears to be in his tone. The Bank of Canada's 2.5 per cent growth projection for next year is at least half a point above consensus, and some, like the Organization for Economic Co-operation and Development, see Canada growing a paltry 0.7 per cent in 2010.
Mr. Orr notes that the governor has expressed concern about the impact of the stronger Canadian dollar, and he may be attempting to "take the steam" out of the currency lest in keep a lit on recovery by hamstringing manufactured exports.
There are other problems coming into view, says Mr. Holt.
"We lag most other countries in terms of the speed by which we've addressed the problems," he said. "Japan started to burn off its excess inventory in quarter four (2008) and quarter one (2009), whereas Canada still had in quarter one the highest inventory to sales ratio as we've had since the early '90s recession and it's trending upwards."
Another sign of trouble is in bond yields, which have pushed long-term mortgage rates up just when the economy desperately needs Americans and Canadians to start buying homes again.
And there's the long-recognized hangover from the pre-recession spending binge which depleted household reserves, points out TD Bank economist Diana Petramala. Households have lost $510-billion in the last three quarters through a combination of lower home values and stock market deterioration.
"The damage to the household balance sheet... will take time to repair, and during the period, consumers will continue to scale spending growth increase savings," she predicted.
Mr. Holt, who remains bearish about the next few years, agrees with Mr. Carney about the lacklustre response of the private sector economy to government stimulus. He says although central banks have done all they can to cut interest rates, consumers and businesses are just not borrowing.
Mr. Porter concedes that most of the recent good news points to an ailing economy that has entered a period of convalescence. There could be a relapse, he admits, but it is also possible for the patient to make a better recovery than many suspect.
"I'm concerned because part of the puzzle that we need is to see some repair in confidence, and to have one of our policy-makers stepping on the green shoots is not helpful," he said.
Given the fragile nature of the economy, a little encouragement couldn't hurt and might even help, he says.