DON’T BELIEVE EVERYTHING YOU READ ABOUT ECONOMICS IN THE MEDIA —THERE’S USUALLY MORE TO IT
WHILE I WAS WRITING this column, the debate was still raging as to whether or not the Canadian economy had entered a recession in the first half of 2015. By the time you read this, to some the matter will be settled, at least from the perspective of the traditional definition of “recession,” which is two consecutive quarters of negative economic growth.
Yet the debate will carry on, fueled as much by partisan bickering as by the reality that monthly GDP numbers are often revised significantly as late as two quarters after-the-fact.
Whether our $2-trillion dollar economy shrinks or grows by a tenth of a percentage point (which amounts to about $2-billion — peanuts in the grand scheme) from one month to the next, is irrelevant. Defenders of both sides of the current recession debate should at least agree on that point.
Whether what we’re living through right now meets one definition or another of “recession” doesn’t concern most Canadians as they get up every day to take the kids to school and head to work.
What is undeniable, recession or not, is that the economy has taken a negative hit. It’s largely due to the precipitous drop in oil prices that’s taken place over the last year, and the resulting reduction in our terms of trade. Are we in a recession as a result? Without being flippant: Who cares?
What is undeniable, recession or not, is that the economy has taken a negative hit. It’s largely due to the precipitous drop in oil prices that’s taken place over the last year.
For the record I don’t think the current economic reality — whatever the future numbers tell us that it is — should be called a recession. Though the often-cited two consecutive quarters of negative GDP growth standard may well have been met, many indicators in the economy suggest that whatever hit we took from lower oil prices, we’re starting to bounce back.
From retail sales to housebuilding to new cars rolling off dealer lots, it’s hard to characterize today’s economy as one that is in a steep and protracted decline in activity. There are already signs that a cheaper Canadian currency is boosting exports and foreign tourism, and that consumers are responding to lower gasoline prices with spending elsewhere.
Economists arguing over the definition of recession may be no more interesting to the general public than geologists arguing over the definition of “mountain”, but the debate does matter.
Negative economic headlines — and most of them are indeed quite negative — can have a tendency to perpetuate themselves. If enough people think we’re in a recession, they may stop spending money, bringing about the very recession we may have otherwise avoided.
The bias that all economic news is bad is an important one to acknowledge. Certainly, our economy faces many serious challenges, from outside our borders and within.
But no matter what the fundamentals in the economy, media coverage and public commentary are almost always focused on the negative.
A decrease in interest rates has headlines screaming that economic activity must be slowing down, or that household debt is set to skyrocket. An increase in rates has the same headline writers fretting about the catastrophic impact on debtholders.
Lost in the debate is that most indicators produce winners as well as losers. Lower interest rates help the cashflow of variable-rate mortgage holders, but they hurt fixed-income retirees.
Higher rates hurt those same mortgage holders (just as they help inflation-linked pensions), but don’t happen in a vacuum. Often, higher borrowing rates happen because of an increase in economic activity or growth.
Those lower oil prices so often presented as nothing-but-negative are saving consumers billions at the pumps while also costing jobs in Alberta. Similar stories can be told for most indicators in the economy. In short, not every single story on the economy is negative, as it is often reported.
Are we in a recession? I don’t think an economy producing record new car sales, reasonable job creation, strong retail sales and growing exports can be said to be in a recession. But it doesn’t mean that we never will be in one.
With certainty, another full-blown, undeniable recession will come. By focusing on the negative aspects of every economic indicator we observe, we hasten the arrival of that day.
