Is Canada Still in Recession?
As yesterday’s Labour Force Survey confirmed, the recession continues for the vast majority of Canadians, who rely on employment for most of their income. But the technical measure of a recession is consecutive quarterly declines in real Gross Domestic Product (GDP).
Some have suggested that, even by this measure, the recession continues. Of course, we will not have a definitive answer until the release of third-quarter GDP at the end of this month.
The recession officially continues if GDP was smaller in the third quarter (July, August, September) than it had been in the second quarter (April, May, June). We have all-industry GDP for every month but September.
It fell from an annualized $1,188 billion in April to $1,184 billion in May, and then remained at that level (give or take a billion dollars). However, April’s higher figure boosts the second-quarter’s average to $1,185.4 billion.
The figures for July and August are $1,184.3 billion and $1,182.9 billion. Bringing the third-quarter average up to the second quarter would require $1,189.0 billion in September.
After a few months of GDP changing by 0.1% or less, a 0.5% jump from August to September may seem wildly optimistic. However, it is well within the realm of possibility.
If GDP stays flat, the third quarter will fall short of the second quarter, simply because the second quarter includes April’s higher figure. But if September GDP recovers to April levels, then the recession may be declared over.
However, there are two complications. First, figures from other months could be revised with the release of those for September and the third quarter.
Second, as Jim explained very well a year ago, quarterly GDP totals are a little more than just three-month averages of all-industry GDP. We are so close to the line that differences between quarterly and monthly measures could easily determine whether or not the recession officially ends.
If you only knew the process they use to conjure up the GDP, you would realize how ridiculous this whole +.1 versus -.1 exercise is. The error estimates on many of the surveys that feed into the GDP could never support such reliablilty estimates at such small levels. And I don’t care what they say at Statcan, there is a whole bunch of intervention and interpretation of the final numbers coming form various sources that feed into the GDP. And again, most times that really does not matter a hoot, but again we are at a point where politically it matters a whole bunch, and as mentioned yesterday on this blog, it matters economically as policy makers start feeling good about cutting rather than stimulating.
We are right back to where we were last time this subject came up when Harper was re-elected last fall and we entered what many thought was a recession yet the numbers said otherwise. Hmmmmm, how accurate were those numbers back then. Not very to put it mildly, it didn’t pcik up on the greatest recession ever, until after it occurred and then the GDP people got there erasers out and wow the adjustments were flying fasting then the BS coming from Harpers mouth telling us all everything was just fine and to vote for him.
That on top of the fact of comments yesterday on why GDP is a farce- I think Travis said it well, playing the GDP discourse game is pretty much cheering for the, neo con way of thinking.
How much does anybody want to lay on the line that the offical number for GDP coming soon to a threatre near you states that the recession is over?
We had a bet entering into this recession, so lets make it two for two that when we get into this less than 1 percent swings, that it again goes in favour of the ruling party.
It should be reinforced somehow that GDP without employment gains in determing recession versus not, is irresponsible on all levels of civilized matters.
We need a new theory for defining recessions. But I ain’t holding my breath.
More soup please!
The way I understand it, you cannot really infer the National Accounts GDP quarterly number from the monthly GDP by Industry series. The former is not built on data from the latter and there are some differences in what is measured eg how taxes are dealt with. Everybody I would listen to seems to be expecting about 1% annualized growth in QIII notwithstanding the monthly GDP profile (eg Drummond; Kevin Page.) Which will, of course, mean that I got it wrong a few weeks ago.
Indeed. Your similar comment on Jim’s last post prompted me to write this one.
I readily accept that we cannot make precise one-for-one inferences from monthly all-industry GDP to quarterly total GDP. But the monthly figures seem to be the only indicator we have at this point.
Is your understanding of the distinction between the monthly and quarterly figures different than what Jim described last year? (See the final link in my post above.)
In my woodworking class I was taught that, in general, you can’t get more accurate than your measuring tool, although you can always be less accurate. I was taught the same thing in my stats classes to. In time series interpretation trends are more important than the *precise* figure. Nobody really believes unemployment is actually X. What people do believe is that the magnitude of the change between two observations of unemployment is meaningful. The same goes for GDP. Anybody hanging much on .01 in either direction is going to sound a little naive. Both indicate stagnation of in an already bad situation.
Travis,
I agree with your point, however there are critcial inflection points that can occur within that small space of change.
I would add that many do understand that the GDP is not absolutely an accurate read of much in the economy, but merely a direction. Up and down, and how much, big- small.
The question remains however, what is driving those out there to decide, for example, within governments that deficits have grown too big and it is now time to focus on cuts.
For all we know, given the continuing drop in unemployment and a few others measures we could be heading into even more unemployment and more economic destruction. So why is it, 4 months ago, it was okay to spend, and now within such a short time, agaiin we are in a space where deficits are to be exited.
Potentially, we will just be dragging along the bottom for the next couple years. However without the spending in place, and cuts starting within the public service, we are going to see that bottom go a lot further down.
How far down can those in charge of the store allow the bottom to sink, that we drag along, before it incites another round of bank failures and collapse.
Recall a coupel of key points- the US unemplyment rate just surpassed 10%, and that is with a measure that uses the R3 unemployment, where is they used our R4, it would most likely be a couple points higher or more.
Also recall that a whole pile of assets within the housing market, have still not been detoxified. There is hope that the market in housing will rebound and that will aid quite a bit in getting the US over the detox hump. Well lets reiterate something here- increasing unemployment in the US will only aggravate the housing sector.
Sure the GDP in the US has changed course, but lets be realistic, without any sustained investment on teh horizon from the business sector, there is not much to get excited over to see a prime mover for employment, which is the one indicator, that will raise all boats.
There is no more credit to extend- so unless we get business investment or more stimulus from govt, dragging only the bottom (wherever that may be) seems to be the future.
Today’s GDP figures indicate that the recession ended by the narrowest of margins.
Despite differences between the monthly and quarterly figures, my inferences from the former appear to have been fairly accurate regarding the latter.
I had suggested (above) that a 0.5% increase in September was needed to pull the third quarter out of recession. In fact, a 0.4% increase in September proved barely sufficient.