The R Word

A recession, we're told, is just around the corner. Heather Scoffield writes:

Deloitte Canada joins economists at Bank of Montreal, Desjardins and Royal Bank in seeing two straight quarters of “mild” economic contraction in our near future — perhaps as soon as the fourth quarter of 2022 which starts in October.

Don’t worry too much, we’re told. It will be painless, and it may even be good for us.

That’s wishful thinking.

Jobs, of course, are top of mind as soon as anyone mentions the R-word. Let’s not gloss over the fact that unemployment is near record lows. Canada’s labour market bounced back from the pandemic recession with surprising strength — a testimony to flexible and resilient employers and employees, as well as plentiful government support.

We are entering the downturn with a tight job market that has pulled in new workers and marginalized workers alike, buoying optimism for a more inclusive and diverse workforce over the long term.

So can it really be that bad?

There’s reason to be leery.

For one, the jobs bonanza of last year is over. Canada’s labour market has shed jobs for the past three months, and the unemployment rate rose to 5.4 per cent in August, albeit from a rock-bottom 4.9 per cent in July.

Brendon Bernard, economist at job-posting site Indeed Canada, has his hands on the day-to-day churn in hiring, and he still sees plenty of strength in the labour market. But it’s not like it was a few months ago. In May, for example, job postings were 74 per cent above their pre-pandemic levels. Nowadays, they’re 59 per cent above.

“We’re still in a job-seekers market, but there has been a momentum shift,” he says. “Things are starting to ease.”

Over at Deloitte Canada, chief economist Craig Alexander has just called a mild recession starting in the fourth quarter. He too sees a cooling of the labour market but, as long as things unfold as he expects, he is forecasting “recession with an asterisk.”

The main reason the economy is poised to shrink, he says, is because companies stocked up heavily on everything they could earlier this year in the face of supply-chain disruptions. But now, supply chains seem to be working themselves out, and companies have no reason keep their inventories high.

In other words, nothing to do with jobs.

The question is, how will governments react?

In the wake of a poorly conceived mini-budget in the United Kingdom that introduced deficit-financed tax cuts, global markets have gone into convulsions. Currencies are churning, bond markets are in turmoil and the Bank of England was pushed into “whatever-it-takes” mode, intervening in markets to counteract the damage.

In Canada, the central bank has signalled it will continue to raise interest rates even as momentum in the economy is slowing. Its attempt to crush demand so it is better in sync with supply is delicate at best, and poised to hurt many vulnerable workers at worst.

And the latest poll suggests Canadians favour Pierre Poilievre as prime minister.

Buckle your seatbelts.

Image: mpamag.com