According to a new poll reported in today's Toronto Star, 57 percent of Canadians think the economy is in recession. Considering that StatsCan reported a few days ago that the economy has just posted its strongest half-year of job creation for about fifteen years, that's fairly remarkable. Even more remarkable is the fact that Canadians have been saying the same thing for the past nine years, since the onset of the global financial crisis. The only slightly reassuring thing is that the number of respondents believing there is a recession has fallen -- last year it was a stunning 76 percent!
Evidently there's a disconnect between how economists measure and describe the economy and how the average Canadian looks at it. For economists, the standard definition of a recession is two consecutive quarters of declining output. You can argue about whether that's a good definition or not, but it least ensures that most of the time, two economists using the term "recession" probably mean the same thing.
For most people, it's a lot more personal. There's an old line that says something on the lines of "it's a slowdown when my neighbour loses his job; a recession when I lose my job; and a depression when my wife loses her job". But as we just noted, the Canadian economy is actually adding jobs, so why the pervasive sense of economic gloom? Let's consider a few possibilities.
First, there's the nature of the jobs themselves. Most of the jobs created in Canada over the past year have been part-time, and carry relatively low wages and benefits. Outside the public sector, the number of workers enjoying well-paid, full-time employment with benefits and the protection of union membership is shrinking inexorably. The so-called "gig economy", in which an individual's employment life consists of a series of short-term contracts, continues to expand.
I've written here before about the woman who cuts my hair. A couple of decades ago she had a high-wage factory job and a union wage; now she has to deal with an endless procession of old farts like me every day, in return for minimum wage and maybe a few tips. I'm pretty sure that if the survey team approached her, she'd say the economy was in recession. There are thousands like her.
Second, the media may play a role. I've commented many times before, both when blogging from the UK and now in Canada, about the tendency for the media to put bad economic news on the front page while burying any good news beneath the obituaries. It's a sound bet that not one in a hundred Canadians is aware of the steady stream of good employment data over the past six months. Journalists also like to use any excuse to roll out the word "recession" -- it only takes one month of falling output for someone in the business pages to write something to the effect that "if this continues for another five months, we'll be in an official recession".
Lastly, what about the Bank of Canada? The Bank's low interest rate policy may have been needed as an emergency measure back around 2008, but it may now be doing more harm than good. What does it do for sentiment, in the business sector as well as among individuals, if the central bank keeps warning that the economy is still in such weak shape that it has no choice but to keep rates negative in real terms? It's worth keeping in mind that the household sector in the aggregate is in general a net saver, so low interest rates impose a real burden on a large proportion of the population. This is particularly true both for seniors (the fastest growing age cohort) and for those approaching retirement, whose ability to build a decent nest-egg is severely hampered by low returns. The so-called Rule of 72 is all but meaningless when savings accounts yield barely 1 percent.*
In short, there are plenty of reasons why the general public might view the state of the economy quite differently from economists. The stuff I was taught in college all those years ago isn't wrong, but there are times when it just doesn't tell the whole story.
* Who am I kidding? I still have a small savings account in the UK. Last week I received a letter advising me that the interest rate is being reduced from 0.05 percent per annum to 0.01 percent!
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