Recession watch update: there's no recession

Statistics Canada reported this morning that Canada's GDP edged down by 0.3 percent, or 1.1 percent at an annualized rate, in the third quarter of the year.  Since GDP growth for Q2 was originally also reported as a small decline, this means the economy is "officially" in a recession, right?  Well, no, because that decline in Q2 has been revised away, with real GDP now posting a 0.3 percent increase for the quarter.  So the media's much-longed-for recession remains evasive, and preliminary data suggest it will not arrive in Q4 either. 

The decline in real GDP in Q3 reflected several factors, some of which may well prove temporary. Exports were lower in the quarter, with the decline surprisingly led by a sharp fall in shipments of refined petroleum products. Although global oil markets are weak, this is unlikely to be repeated in the current quarter. There was also a marked slowdown in inventory accumulation, while household spending was flat. Housing construction increased for the first time since early 2022, a welcome development in light of the immigration-driven rise in population. All in all, the quarterly data depict an economy that is trending sideways rather than one that is poised to fall off a cliff.

Then there are the monthly data, which are always updated alongside the quarterly figures, although they are calculated on a somewhat different basis. StatsCan reports that real GDP grew 0.1 percent in the month, with a strong rebound in manufacturing output partly offset by reduced raw materials production. StatsCan also provided an initial estimate for October, showing that real GDP posted a 0.2 percent gain as raw materials extraction bounced back from the previous month's weakness.  The combination of the strong-ish "handoff" from September and the October gain means that the economy would have to post a significant decline in November and December to produce a decline in GDP for Q4 as a whole.  Yet again, then -- no recession for now.

The recessionophiles in the media and online, in Canada and elsewhere,  have recently started to talk about a "per capita recession". I know what this is and I daresay my esteemed readers do too, but I can't say it's a term that saw much use until the old-fashioned type of recession obstinately refused to show up.  That said, it's a meaningful concept, especially in Canada where population growth is currently so rapid.  Canada is unequivocally in a "per capita recession" right now, a development that likely goes a long way towards explaining the sour mood that voters express when they talk to opinion pollsters. "Per capita recession" equals falling living standards, something governments ignore at their extreme peril. 

Whether we are talking about GDP in the aggregate or on a per capita basis, today's data confirm that there is no likelihood of any further Bank of Canada tightening.  Talk of early rate cuts seems premature, however.  As long as real GDP is still edging forward, the Bank has the luxury of waiting to make sure that inflation really does come all the way down to the 2 percent target.