Recession talk has dominated the news lately with an endless supply of pundits debating whether the United Sates is in a recession. It’s good to have that debate, but virtually everyone seems to have forgotten the incredibly abnormal circumstances fueling the dispute.
That’s not to say that anyone should ignore the bad policies–there are tons of them–contributing to economic turmoil, but policymakers will just make things worse if they lose sight of what’s happened. The obvious starting point is early 2020.
When COVID-19 started spreading across the country, state and local governments issued stay-at-home orders and effectively shut down the economy. The resulting drop in consumer purchases was unlike anything the nation has previously experienced.
Between the fourth quarter of 2019 and the second quarter of 2020, nominal gross domestic product (NGDP) fell from $21.7 trillion to $19.5 trillion. This 10.22% decline surpasses anything in the historical record. (And although everyone seems to forget, it was followed by a decline in the overall price level.)
Then, almost without warning, the economy roared back to life.
Between the second quarter of 2020 and the fourth quarter of 2020, NGDP increased by 10.27%. Although the NGDP growth rate came very close to this figure in 1950, the 2020 increase is the largest two-quarter increase in the historical record. And it was followed by another 8% increase through the third quarter of 2021.
Naturally, the massive drop in demand caused all kinds of supply problems, and with so many people unable to work, it spurred a burst of federal spending. By the time all was said and done, Congress had pumped out almost $7.5 trillion in stimulus, boosting Americans’ disposable income well above the average growth rate.
Unsurprisingly, the massive surge in consumer demand worsened the many supply-side problems caused by the pandemic and the government-imposed shutdowns, and inflation took off at rates not seen in 40 years.
So, regardless of how one labels the current economy, it is not part of anything close to a normal business cycle.
And forecasters should drop any pretense that they know when things will get back to normal because all such forecasts depend on wildly abnormal data. In other words, forecasting economic outcomes–something that was already, to say the very least, hit or miss–is virtually impossible right now because the data is so anomalous.
These issues are bad enough for anyone who insists on identifying whether the United States is in a recession, but an even bigger problem is that there is no objective definition of a recession. None whatsoever.
As a result, all arguments about whether the economy is formally in a recession are equivalent to unsubstantiated opinion.
It is even somewhat dicey to compare official recessions through time because the National Bureau of Economic Research (NBER) does not use an objective, consistent definition. The official statement reads as follows:
The NBER’s definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.
…
Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity. The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies. These include real personal income less transfers, nonfarm payroll employment, employment as measured by the household survey, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions. [Emphasis added.]
A significant decline? More than a few months? Three interchangeable criteria? (And they can offset one another?) No fixed rule? And a bunch of economists have to agree before calling the recession dates?
It’s amazing there is just one set of NBER business cycle dates.
Rather than argue over whether the American economy is in a recession, it makes just as much sense to point out that GDP has declined in consecutive quarters only 5 times since 1947, so the current situation is surely bad.
While that’s not much of a revelation to anyone who’s been paying attention, even right now, in the most abnormal of times, there are both good and bad signs.
For instance, GDP has declined in consecutive quarters, inflation is high, and both total nonfarm payrolls and labor force participation remain below their pre-pandemic levels. Housing starts have fallen to a nine-month low.
On the other hand, the second quarter GDP decrease was smaller than the first quarter decrease, consumer spending has remained strong, industrial production is growing, and personal income increased in both the first and second quarters. Moreover, household balance sheets are strong. For example, debt service payments as a percent of disposable personal income are at an all-time low (the series starts in 1980).
None of these positive signs are meant to “prove” things are fine, or to excuse the policy mistakes that have made the economy worse. There are, in fact, tons of bad policies that have legitimately caused millions of people to bicker over exactly how bad things have gotten.
On the major issues, though, it could be the case that there is no simple policy solution.
For instance, the United States labor market might be in the middle of major shifts due to years of bad policies, the consequences of which the pandemic and government shutdowns simply sped up. The employment gap remains almost 2 percent, meaning that employment is almost 2 percent below where the pre-pandemic trend suggests it would otherwise be right now. However, a close look suggests that the bulk of this gap is explained by workers 65 and older deciding to retire and, to a lesser but large extent, 20 to 24 year-olds dropping out of the labor force.
For years, businesses have been complaining about how hard it is to find workers and warning of the impending retirement of baby boomers. And demographers have long noted the trend toward having less children, but critics consistently scoffed at the idea that there was an actual labor shortage in the United States.
Against that backdrop, Congress steadfastly refused to make any major reforms to the badly broken immigration system, pretty much the only way to get more workers. Whatever the reason, business owners now find themselves having to pay workers more, a higher cost that tends to put upward pressure on consumer prices, thus worsening inflation. (Disturbingly, productivity is at a 75-year low, but that’s for another column.)
And given the supply-side problems that are contributing to high inflation, the Fed finds itself in a major pickle. It must fight inflation to fulfill its legislative mandate and maintain credibility, but it knows that monetary policy is ineffective against price level increases caused by supply-shocks.
So that leaves Americans at the mercy of Congress for positive policy responses, and that’s a most unfortunate position.
In practical terms, the only thing Congress does well is spend other people’s money, exactly the wrong prescription to fight inflation. The recent $7.5 trillion in stimulus/pandemic relief has worsened supply-side problems, driving prices higher. More government spending will only do the same, so for the love all that exists in the universe, Congress should slow its spending roll. (Congress should also ignore the critics who want higher taxes to stem inflation, but I’m pretty sure members don’t need much convincing that now is a bad time to raise taxes.)
Americans would be far better off if the federal government stepped back right now, but Congress doing less is even rarer than consecutive quarterly declines in GDP.
If Americans are lucky, gridlock will set in and there will be no major spending increases prior to the next election. If they’re extremely lucky, Congress will enact majorpolicy reforms that freeup private sector workers–even those that produce fossil fuel energy products–to increase the supply of goods and services. It would help clear supply constraints and lower prices, providing more economic opportunities for millions of Americans.
Those would be incredibly abnormal circumstances on Capitol Hill, but that’s how Congress can help fix the bad economy.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
