No Technical Recession, Not That It Matters
Today’s GDP numbers (a sprightly gain of 0.3% at basic prices in July) ensure that there will not be a so-called “technical recession” in Canada — at least, not yet.
Economists have a perverted definition of “recession”, whereby it’s considered official only if real GDP declines 2 quarters in a row.Â That’s hilariously arbitrary.Â And the flip side of the coin is even more galling: “recovery” is with us, they say, once real GDP stops contracting and starts growing again.Â That’s why Mark Carney could declare the recession over in July 2009 (when real GDP started to grow again), even though for most Canadians it hasn’t stopped feeling like a recession ever since.
Since real GDP contracted a hair in the second quarter, there was some suspense among the nerds who follow these things closely that we might already be into the double dip.Â If real GDP for the third quarter came in negative, that would indeed make it “official.”
I didn’t think that was likely, even before today’s data.Â It’s definitely not going to happen now.Â Based on the monthly GDP series (which is conceptually slightly different from the quarterly data, so use with caution), real GDP would need to decline by 0.3-0.4% in both August and September to pull the average for the quarter below the average for the second quarter.
That’s virtually impossible to imagine.Â It happened between November 2008 and March 2009.Â But it’s happened no other time during the last decade.Â And we knew what was happening in those terrible months.Â Today is the last day of the third quarter.Â The last three months have been unsettled and stagnant, but there’s certainly been no free-fall.Â Employment, exports, retail sales and other leading indicators suggest stagnation or very slow growth, but not an actual downturn.Â The auto industry (which is often a key source of month-to-month variation in the GDP numbers, including driving today’s positive news) has actually done pretty well since the summer.
So don’t hold your breath: the official third quarter number, when it’s released (not til November 30) will be positive.Â But don’t crack any champagne corks to celebrate that “achievement,” either.Â Because whether the real GDP is expanding by a fraction or falling by a fraction, the reality is that for most Canadians the recession is still with us.
We need real GDP to grow at 2.5% per year just to maintain the status quo in the labour market (since we need to absorb population growth of around 1.5%, plus productivity growth of 1%, just to keep unemployment from growing).Â It needs to be faster than that, in order to tighten up the labour market slack, generate rising incomes, and underpin prosperity.
That’s how I would define a true recovery (growth at 2.5% or more), and we haven’t been anywhere near that since Lehman Brothers collapsed.Â Yes, we had a couple of strong quarters — driven purely by monetary and fiscal stimulus, both of which have now pretty well expired.Â For over a year, though, we’ve been stuck in the mud.
The employment rate (a better measure of labour market strength during recessions than th eunemployment rate) has clawed back less thanÂ one-quarter of the decline it experienced during the downturn.Â More ominously, there has been no continued rebound in the employment rate since June 2010.
So from the perspective of people, rather than quarterly statistics, we are still in the last recession — never mind falling into a new one.Â That’s what makes it all the more important for policy-makers at all levels to be focusing on job creation and investment, not on deficits and debt.
And Canada’s brush with “technical recession” should also cause us to rethink the national back-patting that has dominated our discourse since the crisis.Â Our officials all complain that it’s Europe and America causing our problems.Â Yet their economies are still growing, while ours (right now) is not.Â We’d better look inside our own glass house (and in particular at the effects of misguided austerity, suddenly-skittish consumers who have lost the will to spend, and the continuing failure of business investment to do what it’s supposed to do) before we start throwing stones at our neighbours.