Business·Analysis

Understanding recession without saying the R-word: Don Pittis

Recessions affect everyone differently. And while there is a widespread aversion to the term we must accept the data for what it is. Don Pittis says the information is not all bad but it does not tell us much about the future.

Are you facing your own personal recession or are all you 'all right, Jack'?

Yachts at Quebec City Marina. It's a little gloomy, but we're not in recession. Are you? Don Pittis looks at why establishment economists hate the term, and why it helps us understand the economy. (Canadian Press)

"It is what it is." That bit of popular wisdom contains so little information that the tongue-in-cheek rhetorical response must always be, "Truer words were never spoken."

But as so many analysts try to redefine yesterday's Statistics Canada data to say Canada is not in recession after all, that truism may finally be useful.

The fact that a recession is defined that way in Harper government legislation is not enough to convince many.

One of the most innovative ways to explain away the statistical evidence that Canada's economy has been shrinking was offered by Royal Bank economist Craig Wright.

Not my recession

"If somebody's lost their job, it definitely is a recession for them," Wright told Piya Chattopadhyay on CBC Radio's The Current minutes after Statistics Canada released the numbers. Wright said that for most Canadians, a strong job market means the rest of us are not in a recession at all. 

It's good to know that by Wright's definition, I am personally not in recession. I was at a party this week where people were talking about buying boats for their cottages. It did not sound like they were in recession either.

Sorry about you unemployed people and everything, but I'm all right, Jack.

It is unfair to single out Wright. Establishment economists all pitched in. At BMO, economist Doug Porter declared the real R-word was "rebound." 

Business is gloom-averse

The business aversion to the term recession does not mean they are all Stephen Harper partisans. Businesses fear that when customers hear the word, they may spend less. They might decide not to take out a bank loan or a mortgage. 

So perhaps rather than arguing over such an apparently loaded term, we should switch to "Two Successive Quarters Where The Economy Shrank." It may be awkward but at least then we can look at the detail in the latest Statistics Canada report and see what we can learn.

Wilf Griese interacts with the art installation Compound Eye during the Burning Man 2015 Carnival of Mirrors arts and music festival in the Black Rock Desert of Nevada, this week. Recessions affect everyone differently, but businesses fear that when customers hear the word, they may spend less. (Jim Urquhart/Reuters)

The biggest line item to hit the eye was a 33 per cent collapse in mineral exploration. That fits with the crash in oil and commodity prices.

Yesterday's announcement of another 900 layoffs in the oil sector indicate we should not expect a rebound there when we see the results for July, August and September. If you live in an oil-producing region, your personal recession (whoops) may be just beginning.

"Capital formation" refers to what businesses are spending now on plant, equipment and buildings. It is a good predictor of future economic activity because businesses use that capital to expand jobs, output and exports. Unfortunately, that number was down two per cent.

Loonie effect

That decline may be due to the oil sector contraction, but another likely cause is the weak Canadian dollar that means imported equipment is 25% more expensive than when the loonie was at par with the U.S. dollar.

Unfortunately, quarterly GDP data is not broken down by region or province, so it is hard to separate out the oil industry effect. Statistics Canada's regional breakdown only comes out once a year in November, and that will be for 2014. Friday's jobless numbers will help fill that gap.

Another loonie-related figure that seems positive at first is the increase in consumer spending, up 0.6 per cent in the quarter. Perhaps that's because those of us who aren't in recession are out buying boats.

But for others forced to spend most of what they earn, another explanation is that the falling loonie is raising the cost of goods they can't do without.

It appears that money may be coming out of household savings, which fell from 5.2 per cent to 4 per cent.

The rising cost of foreign goods is also the likely reason for falling imports, down 0.4 per cent, and rising exports, up 0.1 per cent. That may not be good for our trade partners, but it means we are spending more at home, probably on services that are still priced in Canadian dollars. Services spending was up 0.8 per cent.

There was one potentially positive sign that seems negative at first. Businesses are adding less to inventories, down from 12 per cent to 7 per cent. Presumably once the recessionary feeling has passed, they will have to restock.

An ill wind

Another positive may not make you feel so good. Value created by real estate agents and brokers rose about 10 per cent. Nice to see someone profiting from all those unaffordable homes. Only a very ill wind blows nobody good. 

Despite all the optimism, there is no certainty that the data in this report tells us what will happen next. June seemed better, but as the financial companies are forced to say, past performance is not necessarily indicative of future results.

After this equivocal data release, that could be either good or bad. As one of those who is not personally in recession, according to Wright, I plan to keep on spending in the hope of bringing the rest of you out of your personal recessions. 

I hope Porter is right about the rebound, but even he can't tell you the answers to the important questions: "Will I be happy?" and "Will I be rich?"

"The future's not ours to see," Doris Day sang in her hit song.

Somehow "It is what it is" seems so much more philosophical when you add the future tense and the Spanish tag Que Sera, SeraTake it away, Doris.   

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis                                                                                         

ABOUT THE AUTHOR

Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.

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