Yesterday upon the stair,
I saw a recession that was not there,
It was not there again today,
I wish, I wish, it would go away.
With apologies to William Hughes Mearns, Antigonish
1899.
The release of yesterday’s employment
numbers by Statistics Canada once again threw a wrench into the ranks of
those who have been predicting a recession by revealing a continued resilience
to the Canadian economy’s job generation machine. Total employment in September of 2023 was
20,270,000 – an increase of 0.3 percent over the previous month with 64,000
jobs created. There were of course both
gains and losses across regions and sectors with Quebec and British Columbia seeing
the biggest employment increases while Alberta and New Brunswick saw
declines.
As well, there were increases in employment in education,
transport and warehousing and declines – not surprisingly given the slowing
housing market – in finance, insurance, and real estate. Nationally,
the unemployment rate remains unchanged at 5.5 percent. When one adds to this the fact that the U.S. economy in
September added over 300,000 jobs and their national unemployment rate
remained unchanged at 3.8 percent, one has to come to the conclusion that the North
American economy is still quite robust despite the unprecedented surge in
interest rates over the last year.
Despite the ever
present and mentioned
spectre
of recession
with numerous forecasts and projections painting dire scenarios it remains that the recession is not here
yet unless of course we are planning to redefine the context within what the
definition of a recession is. After all,
the most recent GDP release also showed that as of July 2023, the economy was
flat, neither up nor down. And one forecaster
has said the economy will get “back on its feet” next year after a few negative
quarters that will see the unemployment rate hit 5.9 percent followed by an easing
of interest rates to the 3 percent range.
If a 5.9 percent unemployment
rate is the worst this recession will bring, then one must wonder if a
recession has simply become a psychological mindset perpetuated by endless
speculation and anxiety of hard times to come.
After all, as the accompanying figure shows, both interest
rates and unemployment rates have been much higher during past recessions. The 1981 and 1991 recessions both had much
higher interest and accompanying unemployment rates than anything at
present. And notwithstanding the COVID
spike in unemployment, unemployment rates have trended down since the 1990s and
remain at close to historic lows bettered only by those of the mid 1960s. I
suppose the only remaining case for a recession coming is that in both of those
recessions, interest rates spiked and remained high for quite some time before
unemployment finally surged. Still, a
forecast of 5.9 percent unemployment because of the current spike in interest
rates does not seem like a recession at all when placed in historical context.
Still, the Bank of Canada’s next interest rate decision has
been complicated by this much stronger economic performance and inflation still in the four percent range.
Moreover, with the sudden new instability in the Middle East, one can
expect oil and gasoline prices to spike meaning inflation is unlikely to go
down anytime soon. Inflationary pressure
is also being fueled by wage increases in the 5 percent range. Indeed, Statistics Canada reported that
incomes in general have been rising particularly in the bottom
two income deciles as a result of wage gains for workers as well as
increased benefits for retirees.
Indeed, when one factors in all transfers to individuals including
not only higher social security benefits and what is essentially a basic income for lower incomes with children via the
Child Tax Benefit, it appears that disposable income in the bottom 20 percent has
increased 20 percent. And, much of this goes to consumption spending as studies
have suggested that lower income deciles have higher
marginal propensities to consume and lower
propensities to save. Meanwhile, another
Statistics Canada report suggests that the economy is doing better because of rising
exports. Given the strength of the U.S. economy, that is not a surprise. Then there is the rising population and its associated demands on
the economy. Put it all together, and
one cannot but help conclude that there is still a lot of inflationary stimuli
being pumped into the economy.
Recession? At
present, the coming recession is a mere spectre, a mythical beast that is
conjured up but is not there.
