Even as Canada’s central bank was announcing its biggest rate increase in 20 years, headlines in the U.S. were filled with warnings from the Bank of America about an impending “recession shock.”
Certainly, Bank of Canada governor Tiff Macklem told reporters at Wednesday’s news conference that there is plenty to worry about.
“Russia’s unprovoked invasion of Ukraine is causing enormous human suffering,” said Macklem in an opening address. “The war has also introduced a major new source of uncertainty to the global outlook and it is boosting already high inflation in many countries, including Canada.”
U.S. inflation hit 8.5 per cent this week. The COVID-19 pandemic has led to a simultaneous shortage of supply and unsatisfied demand. Shortages of oil and food from Russia and Ukraine are causing new price distortions.
More expensive loans
In an effort to crush inflationary expectations and force us to spend less, Macklem has launched what he says will be a series of rate hikes that will make all our loans more expensive.
So is now the time to move to the bush and stock up on food?
While some will want to prepare for the worst case, interviews with people who have studied Canada’s economic history — and also lived through a lot of it — suggest we should take a moment to put things in historical context.
“We’re the richest anybody’s been in the history of the universe,” said professor emeritus Jon Cohen with the hyperbole permitted to an 82-year-old economic historian who says he’s seen it all. “That doesn’t mean we necessarily stay that way, but right now, yeah, it’s the best of times.”
Cohen, who has “been teaching at the University of Toronto, like, forever,” has been thinking about why Canadians have been so gloomy lately.
“It’s like we’re climbing a wall of worry at this point,” he said on the phone on Wednesday.
“People’s perception of the economy does seem to be way out of line with how bad things really are,” said Nobel Prize-winning economist and columnist Paul Krugman in a podcast Monday.
‘A media failure’
Krugman said he’d seen polls of people in the U.S. convinced the country was losing jobs. Instead, the North American economy is in a time of record-low unemployment.
The U.S. economist called that “a media failure.” He also said that U.S. self-identified conservatives were the ones most convinced the economy is in terrible shape, “worse than it was in 1980 when we had eight per cent unemployment and 14 per cent inflation.”
WATCH | Record-low unemployment gives workers more options:
Bad things are often seen as more newsworthy than happy news. So while affordability and the costs of everyday living — housing, in particular — are soaring, it isn’t the whole story.
In Canada, the unemployment rate last Friday hit 5.3 per cent. That is the lowest rate on record. And while that number is higher than the U.S. rate of 3.6 per cent, a difference in the way the data is collected means those numbers are closer than they appear.
And that low rate of unemployment makes a real difference to those who face challenges getting into the job market, said Tim Lang, president and CEO of Ontario’s Youth Employment Services, a provincially funded group that trains and finds jobs for people between the ages of 15 and 29.
Work for all who want it
At the height of the pandemic entry-level jobs plunged, Lang said, sending youth unemployment rocketing to 30 per cent. But not any more.
“You could almost say anyone who wants to work can work,” Lang said. That includes what Lang describes “at-risk youth,” people with mental illness or other challenges that, in the past, may have affected their job prospects. The current shortage of workers is showing employers what great employees they can be.
Macklem made it very clear that a few rate hikes will by no means strangle the booming job market or the wider economy, as the bank predicts a growth rate of 4.5 per cent this year and 3.5 per cent next — both of which are very healthy rates for a mature developed economy.
Businesses say they are planning new investment. Exports are good. The reopening of the economy is moving consumer spending away from consumer goods that are in short supply and back toward services. Interest rates, while higher, remain “accommodative” — in other words, borrowing at the new rate is still an exceptionally good deal.
Not only that, but while the world suffers from a shortage of oil and gas, potash and wheat due to the war in Ukraine, Canada has plenty of all those things to use or to produce and sell. And unlike in previous times of rising resource prices, the loonie is not rising this time — something that in the past has made Canadian non-resource goods harder to export.
Ian Keay, who teaches economic history at Queen’s University in Kingston, Ont., calls himself an empiricist: “I collect data — I’m not a social historian or anything like that.”
And what Keay sees right now in the Canadian economy is encouraging.
“The fundamentals are really strong, right? Productivity is pretty good. Resources prices are strong,” said Keay in an interview this week. He said indicators show the structure of the economy is flexible with lots of innovation.
“It’s a pretty positive view, but that doesn’t mean people aren’t scared, that there’s not uncertainty about moving forward.”
From his many years of watching economic ups and downs, Cohen agrees. Battered by bad news, he said it’s not unreasonable to worry that things like the war in Europe or the pandemic could cause more economic trouble. But he said his own long historical view allows him to worry less.
“Things slow a little bit, and then we get going again,” said Cohen.
It may not be as exciting a story as doom and gloom, but barring an unexpected catastrophe, he said, Canadians have every reason to foresee a bright future.
“We’re again in a period of very rapid technological change and innovation, which makes us more productive and actually richer,” said Cohen. “That’s a big deal and that’s one good reason to be optimistic.”