Not dead yet* (Canadian edition)

Ahead of this morning's release of GDP data for August, the Canadian media were quite ready to declare that the economy was already in deep doo-doo and that things could only get worse from here. Consider this article from the CBC website, loudly proclaiming that "the bad economic times have only just started".  Regular readers of this blog (or of the Canadian media) will know that this headline could have appeared any time over the past eighteen months, without ever actually being accurate.  Are things finally different this time?

StatsCan's data shows that real GDP was unchanged in July, after a 0.2 percent decline in June.  Weakness in goods producing sectors, particularly manufacturing, was offset by gains in service-producing sectors.  The monthly data continue to be noisy, making it tricky to determine the underlying trend. Most notably, sectors affected by wildfires in June -- mining, oil and gas, accommodation and food services -- rebounded in July.  Of the twenty sectors monitored by StatsCan, nine posted higher output in July.

So, with real GDP falling in June (and for Q2 as a whole) and not increasing in July, the stage is set for a relatively weak Q3.  StatsCan's preliminary estimate shows that GDP likely edged up by 0.1 percent in August, with further gains in service sectors offset by weakness in retail trade and oil and gas extraction. The sensible interpretation of today's numbers seems to be that the economy is muddling along rather than collapsing, with good months and less good months alternating. 

This has been the case since early this year and it looks likely to continue for some time yet, as the impact of Bank of Canada rate hikes continues to feed through the economy.  Whether this eventually produces the "official definition of a recession" that the media love so dearly -- two consecutive quarters of declining GDP -- remains to be seen.  But in any case, real GDP is arguably not the indicator the media and policy makers should be focused on right now.

Next Friday (October 6) we can expect to see employment data for September. Recall that in August, the economy added a robust 40,000 new jobs -- but the unemployment rate rose as high immigration added more than 100,000 people to the workforce.  The temperature of the debate over immigration has thankfully dropped slightly in recent weeks -- media have other things to think about, courtesy of Justin Trudeau's blunder-of- the-week club -- but the numbers coming into the country have not.  Even if the economy stays out of recession in the coming months, it is hard to see how it can possibly create enough jobs to absorb all those looking for work.  A steady rise in the unemployment rate would soon have politicians clamouring for rate cuts, something the Bank of Canada will be reluctant to provide unless inflation resumes its downward course. 

* I used this Monty Python quote as the title of a blog post way back in 2012, when I was still living in the UK. The post was about the media crying doom over the economy despite the absence of any hard evidence. There's a surprise.