Hold that recession

The apparent refusal of the economy to slump into full-scale recession is driving economists and the media batty. Small wonder.

The recession watch unofficially began in 1997 with the meltdown of many Asian countries’ currencies. The fear, written and talked about incessantly, was that the Asian crisis would spread pathogen-like to Western economies, setting off a global recession, or worse. At some point in 1998 the Asian crisis and recession mania decoupled, leaving only recession mania. At this magazine’s annual resin outlook conference in late 1998, economist Derek Holt of the Royal Bank did not mince words — continued personal wealth deterioration would lead the global economy into a recession.

Throughout all 1999 recession mania was relentlessly played up in the media. Newspaper and TV analysts especially liked US Federal Reserve Board Chairman Alan Greenspan’s take on the stock market’s “irrational exuberance”. When equity prices, led by high-tech stocks, continued to climb through the year, fear of a stock market crash was absorbed into a more all-encompassing fear, the Y2K mother-of-all-crashes.

Dawn broke uneventfully on January 1, 2000, and economic sages and prophets kissed the ground discerning, at last, Divine Will. We had been spared an apocalypse, only because our Master wished the bad karma of uncertain economic forces to play themselves out. Why, these savants shouted with hysterical glee, there it was, just lifting its mug over the horizon, in the form of historically high prices for gas and oil! You guessed it, just as predicted. A Recession!!!

Spooked perhaps less by high energy prices than by under-performing companies, investors indeed dumped significant chunks their portfolios. The media faithfully reported the carnage. “Billions Lost in a Day”, stories ran, largely neglecting to mention that investors, in cashing out of the market, were also now in tow of large amounts of cash, which they would presumably use to purchase something or reinvest. At the end of the current year, recession watchers breathlessly tallied the results — the U.S. economy grew at a robust 4.7% and Canada’s at a super-achieving 5%. Outrageous! What mule-headedness! What … irrational exuberance!

Not to be deterred, the media has begun to roll out its stockpile of recession stories anyhow. In March, the Globe and Mail ran a feature article titled “Have a Nice Recession” which answered vital questions on everyone’s mind, such as what should we eat, drink and wear during a recession, and offered nuggets of highly ironic analysis, for example, “The psychology of recessions is far from predictable.”

Well, duhhh.

Might this again be the case of the recession that never was? One of the difficulties in answering this question is determining what a recession actually is. I’ve heard at least three different definitions of a recession. With such variation in the terms that define a recession, maybe nobody, except perhaps Alan Greenspan, truly knows if we’re in a recession or not in a recession.

Is the glass half empty or half-full? Sure, the economy has slowed, manufacturing has contracted and there have been some layoffs. Yet, in Canada growth is predicted to be 3% this year. In January, there were 174,000 new housing starts, a record. Unemployment as I write stands at 6.6%, down slightly from last year.

Sorry recession watchers. This doesn’t feel like a recession. A recession, however you define it, may indeed come to pass. If it does, given four years of non-stop recession prophecy, the wonder will be why it didn’t come to fruition sooner.

e-mail: mlegault@corporate.southam.ca