Thu, Jul
16
2015

Recession and Perception II

Thu, Jul 16, 2015

injured-piggybank.jpgI'm a little leery of writing this out loud, since I know the Fates sometimes seem to delight in making mischief with proclaimations. We all know we shouldn't say "what's the worst that could happen?" or "This'll be the best Christmas Walford's ever had!" so perhaps it is the height of irresponsibility to say anything optimistic about the economy anywhere where someone else can read or hear.

And yet, we've been constantly told that we're on the verge of a recession, or are in a recession. Finance Minister Joe Oliver is frantically denying it, likely for political reasons, but the banks are aligning against him. The Bank of Canada recently announced an interest rate cut from 0.75% to 0.5%, and the Canadian dollar has dipped below $0.77 US. The Progressive Conservative government of Alberta fell partly on news that they were facing a $7 Billion deficit in 2016 (though they posted a $1 Billion surplus this year), and economists are doubtful that Joe Oliver will meet his balanced budget goal.

Admittedly, I've razzed Oliver's lengthy vacation on the Denial River. Governments never like to admit that a country is in a recession. In the early 1980s, the Liberals downplayed economic woes with wordplay, and were quoted by comedians as saying "this isn't a depression, it's a recession". In the early 1990s, Mulroney tried to avoid the r-word by substituting another one, "retrenchment". You hear other words out there used to try to soften the blow, like "downturn", or "correction", or possibly, "it's the Greeks' fault."

I can't argue with the official definition of what a recession is, to whit: "a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters." However, I have to admit, from where I'm sitting, this doesn't feel like a recession.

Where I'm sitting is Waterloo Region, near the Greater Toronto Area. Whenever I go out to eat, the restaurants are comfortably full. There are few, if any, closed storefronts in downtown Kitchener or uptown Waterloo. There are no announcements of major layoffs, and no new plants are closing (though, arguably, most have closed already. Budd Canada is now a field of broken concrete awaiting redevelopment, and Schneider's passing has been anticipated for nearly a decade). There is no major uptick in the unemployment rate for local media to trumpet with doom (we're at 5.5%, compared to 6.8% for the rest of the country).

And, recently, we finally brought in roofers to update and restore the roof of our new house. This procedure took several weeks, even after we selected a roofer. Some roofers were too busy to take us on. "It's peak roofing season," they told me. "The schedules are booked up." The ones we got showed up on schedule, about four weeks after we booked them.

If the Canadian economy is doing poorly, the Waterloo economy is doing well enough to put enough money in the pockets of enough households to keep several roofing companies busy throughout the spring, summer and fall. You can hardly cross the city for all the construction that's taking place (and the jobs that are associated with it). People are working, and people are spending. People seem confident.

This isn't to say that there aren't things to worry about. Housing prices remain at ludicrous levels in the Greater Toronto Area and people are justifiably worried about a housing bubble, the bursting of which could change our attitudes in a hurry. And while Ontario has seen no increase in its fiscal deficit, the fact remains that the deficit remains, and it's proving stubborn to defeat.

But if the true definition of a recession is "a recession is when you know a friend that has been laid off, and a depression is when you yourself have been laid off", I haven't met the criteria over here. And, yes, I'm saying this with my fingers crossed so as not to jinx things. However, I'd still hazard a guess that my part of my province is doing fine. I wondered this about 2008 as well. In that case, we had abandoned houses in the United States, and the replacement of fiscal surpluses in Canada with sharp deficits, but while the local unemployment rate reached nearly 10%, things didn't feel as dire as they did in the early 1980s recession, or the early 1990s one.

Again, fingers crossed.

The fact that Canada as a whole appears to be dipping into recession, according to the media, according to the Bank of Canada, and according to the official definition favoured by economists, and the fact that Alberta's economy has staggered enough to topple a 44-year-old government dynasty, leads me to wonder if there is a particular culprit in our economic downturn. Economists are pointing to the shocking drop in world oil prices as a major cause. But much as I feel sorry for anybody being caught in economic turmoil, I think this highlights the risk of tying our economy too closely with one resource sector, not to mention the benefit of not putting all your eggs in that resource sector's basket.

Canada is a big and diverse country, and it has a big and diverse economy to match. Fostering that diversity may have helped us where I live, and if the Canadian government's finances are falling due to economic issues, perhaps the government of the day hasn't done enough to foster that diversity where it governs.


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