That damned, elusive recession

They seek it here, they seek it there, the media seek recession everywhere. On Tuesday Statistics Canada reported that Canada's real GDP rose 0.7 percent (or 2.9 percent annualized) in the third quarter of the year, almost twice the expected pace. So what did the media report? well, the headline on this story from the CBC website is fairly typical: "Canada's economy is still growing but signs of slowdown are everywhere".  

The media have been saying more or less the same thing since at least May and they have been mostly wrong. Are they right this time? Well, maybe. The StatsCan report shows that the biggest source of growth in the quarter was the export sector, which posted a 2.1 percent real terms gain, led by crude oil, bitumen (i.e. tar sands products) and agricultural/fisheries products. Several indicators of the domestic economy paint a noticeably softer picture: inventory accumulation provided a strong boost to overall growth for the second consecutive quarter, which is likely unsustainable, while housing investment fell for a second straight quarter, obviously in response to Bank of Canada rate hikes

Perhaps most significant of all,  household spending edged down by 0.3 percent in the quarter, its first decline since Q2/2021. This may in part reflect slowing growth in employee compensation, which rose at the slowest pace since Q2/2020,  the worst point of the COVID pandemic. In addition, the household savings rate rose in the quarter to 5.7 percent, which is more than twice as high as was seen in the same quarter of 2019 (i.e. before the pandemic). This suggests the belt-tightening the Bank of Canada wants to see is beginning to occur, though household savings are still much too low to protect the majority of households against the effects of the Bank's policies.  

As usual, StatsCan also reported the latest monthly GDP data alongside the quarterly figures. Real GDP edged up by 0.1 percent in September, led by the goods-producing sectors (other than manufacturing). Preliminary data suggest that GDP was unchanged in October, though these preliminary estimates have been subject to considerable revision in the recent past. We can perhaps reasonably assume that real GDP will be little changed for Q4.  Let's suppose GDP then starts to fall -- though that is, of course far from certain.. Given that the media's favoured definition of a recession is two straight quarters of declining GDP, that would mean it would not be possible to call a recession until the Q2/2023 GDP data appear -- at the end of next August! By that time the media's initial recession call will be well over a year old. Nice job, guys and girls.