The National Bureau of Economic Research (NBER)’s authoritative Business Cycle Dating Committee itself uses a two-part classification – “expansion” and “contraction”.
Economy
Recession by any other name will still reset the economy: Kemp
In reality, the business cycle is a continuum ranging from boom, rapid recovery and strong growth at one extreme through soft patches and mild recessions to severe recessions and depressions at the other.
Explaining its interest rate decisions, the U.S. Federal Reserve has characterized economic activity with phrases including “rapid,” “vigorous,” “robust,” “solid,” “moderate,” “slowed considerably” and “severe disruption.”
Growth in business activity tends to accelerate and decelerate; outright declines in the level of activity are relatively rare.
The NBER’s Business Cycle Dating Committee formally declared only six recessions between 1980 and the end of 2020.
The U.S. economy was in recession for just 58 out of 492 months (less than 12% of the time), on the NBER definition.
But there have been twice as many distinct cyclical troughs in the purchasing managers’ manufacturing index published by the Institute for Supply Management (ISM) over the same 41-year period.
These additional cyclical troughs centered on 1985, 1989, 1996, 1998, 2012 and 2016 were never formally declared as recessions by the NBER.
In the Fed’s discussions, these periods were characterized as periods of “moderate growth” or a “soft patch”.
They were periods of little or no growth in an otherwise uninterrupted business cycle expansion and tend to be forgotten.
Dissatisfaction with sluggish wage growth resulting from mid-cycle slowdowns in 2012 and especially 2016 likely contributed to the election of President Donald Trump in 2016.
Mid-cycle slowdowns also reset the economy by easing capacity constraints and relieving upward pressure on prices and wages.
The unusually long business cycle expansions of the 1980s (92 months), 1990s (120 months) and 2010s (128 months) were each punctuated by two mid-cycle slowdowns.
Mid-cycle slowdowns almost certainly helped prolong the formally declared expansions by freeing up spare capacity and taking some of the heat out of prices and wages.
Similarly, if it hadn’t been for mid-cycle slowdowns in 2012 and 2016, resetting capacity utilization and sapping inflation and wage growth, it seems likely the most recent expansion would have ended before 2020.
From an analytical viewpoint, the distinction between mid-cycle slowdowns that prolong an expansion and cycle-ending recessions is somewhat arbitrary, a difference of degree rather than nature.
For that reason, it is more useful to focus on whether the growth in business activity is accelerating or decelerating rather than whether the economy is in recession or not.
U.S. manufacturers reported activity was broadly flat in October as the merchandise and freight sector of the economy continued to lose momentum in the face of rapid inflation and excess inventories.
The ISM purchasing managers’ index slipped to 50.2 in October (30th percentile for all months since 1980) from 50.9 in September (36th percentile) and 60.8 a year ago (99th percentile).
The composite index has declined in nine of the last 12 months and is now at the lowest level since May 2020, when the economy was still in the grip of the first wave of the coronavirus epidemic.
The new orders component was below the 50-point threshold dividing expanding activity from a contraction for the fourth time in five months (“ISM manufacturing report on business”, Nov. 1).
Slower growth in manufacturing and freight is translating into slower growth in the consumption of diesel and other middle distillates.
The volume of distillate fuel oil supplied to the U.S. domestic market (a proxy for consumption) was up by less than 1% in the three months from June to August compared with the same period in 2021.
Distillate use is closely correlated with the ISM index so the continued decline in the index in September and October signals consumption growth likely slowed further.
Chartbook: Global manufacturing cycle
CYCLICAL SLOWDOWN
Between 1980 and the end of 2020, the ISM manufacturing cycle reached a distinct trough on average every 41 months or roughly every 3-4 years.
The manufacturing and freight cycle, rather than formal recessions alone, is what matters for the consumption of distillate fuel oil and other cyclical energy products.
The current downturn in the manufacturing cycle will dampen the rate of growth in distillate consumption and possibly even reduce fuel use outright.
In the United Kingdom, the European Union and China the cycle appears even more advanced, with purchasing managers’ surveys indicating activity is already falling in each case.
The Eurozone manufacturing purchasing managers’ index slipped to 46.4 in October (12th percentile for all months since 2006) and has been below 50 for four months running.
The slowdown will ripple out from the major economies at the core of the global economy (the United States, China and Europe) to the lower-value manufacturers and commodity producers on the periphery.
The cyclical slowdown will reset industrial capacity utilization, labor markets, inflation and wage growth – whether or not it results in a formal recession being declared.
Related columns:
– Recession will be necessary to rebalance the oil market (Reuters, Sept. 22)
– Oil and interest rate futures point to cyclical downturn before end of 2022 (Reuters, July 22)
– Global business cycle starts to turn down (Reuters, June 30)
– Diesel is the U.S. economy’s inflation canary (Reuters, Feb. 9)
John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Tomasz Janowski)
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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
The Canadian Press. All rights reserved.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
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