BUSINESS FRONT

WHAT, ME WORRY?

DO WE FACE A RECESSION WORTH ANGUISHING OVER?

When I was a kid, I flat-out loved Mad Magazine. My guess is that many of you reading this column have equally fond memories of that irreverent rag (I describe it that way affectionately). I hadn’t seen any Mad Magazines in a long while, so I did a Google search and discovered that it printed its last edition in April of 2018.

The most memorable character was Alfred E. Neuman, the mophaired boy with a gap-toothed smile. His motto: “What, me worry?” That pretty well describes how I’m feeling right now about the prospect of a recession that might hit North America.

There are a number of economic observers who believe that a recession may have actually started this spring. There are some signs that this may be the case. The stock market is a reliable leading indicator (which means it presages the future) and it started to sell off quite dramatically starting in April. The yield curve has been flirting with inversion, which means that what you will earn annually on a shortterm bond exceeds what you will earn on a longer-term bond. The yield curve will likely invert even more if the Central Banks keep raising interest rates.

RECESSION DEFINED

I’ve been talking about recession without defining it precisely. There are two related, but different, definitions. Statistics Canada judges a recession based on the depth, duration, and diffusion of the decline in economic activity. The decline must be of substantial depth, last for more than just a few months, and should be a feature of the entire economy. In other words, it must be felt broadly. The more colloquial definition is two consecutive quarterly declines in real gross domestic product. And based on my own personal experience, I could make an argument that the Hlinka family is experiencing a mini recession right now, largely due to inflationary pressures.

Let me explain. I’m a unionized professor at George Brown College. To the best of my recollection, the wage increases in our current contract are 1.5 per cent annually. Inflation is in the range of 6 to 8 per cent. If these numbers are accurate, it means that our family is about 5 per cent worse off in real terms, year-over-year. Even if inflation levels off, in another 12 months, we could well be living at 90 per cent of what we did two years ago. That’s a pretty good definition of a recession.

However, the nature of my employment is why I believe that not only my family, but Canadians in general, have little to worry about as the economy slips into something that sure looks and feels like a slowdown.

Let’s dive deep into the latest Labour Force Survey which was released July 8. Even while employment fell, the unemployment rate declined to 4.9 per cent, as fewer people searched for work. Isn’t that curious? People, particularly those aged 55 or older, are voluntarily leaving the job market. Why do people stop looking for work when there are ample opportunities? They don’t need the money.

PUBLIC-SECTOR WORKFORCE

Then there’s the nature of the Canadian workforce. About one in four of us are public-sector employees. It’s a cruel and unfair truth that we’re privileged in that we’re recession-proof. If you’re reading this and you work in the private sector, your position is vulnerable, and you could understandably feel resentment. I wouldn’t blame you. Yet at the same time you must recognize that the protection people like I have means that I’ll receive a cheque every two weeks, spending my money and supporting the economy.

What’s happening now should not surprise anyone. When the decision was made to shut down the economy due to COVID-19 and flood the market with money (which is only paper), it made perfect sense that there would be inflation. A year ago, the inflation we saw was assetinflation. The stock market soared, bond prices rallied, and real estate was going straight up. There was enough inventory to handle demand at that time, and because people were nervous, we in North America saved like we hadn’t saved for generations. But that spending has been loosened and we’re seeing that reflected in the Consumer Price Index.

The nice thing about a market economy is that the invisible hand will adjust. Higher energy prices will dampen demand and lead profit-maximizers to search for new sources. Food is more expensive, and that will lead farmers to plant more. We can’t overlook that unemployment on both sides of the 49th parallel is low, and to the best of my knowledge, job vacancies greatly outnumber the unemployed. Put all this together, and I’m firmly in the Alfred E. Neuman camp. I just don’t see much to worry about when it comes to recessionary conditions. SP

Toronto-based Michael Hlinka provides business commentary to CBC Radio One and a column syndicated across the CBC network.

“There are a number of economic observers who believe that a recession may have actually started this spring.”