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.