What do economists know about recessions anyway?

An alternate viewpoint on our current economic situation.

We are all aware of the situation, the economy is in a slump, and those of us with money invested don’t know whose outlook to believe. Government ministers and representatives are trying to assuage doubt and fear, meanwhile pundits and economists point to the shrinking job market as a sign that things might be getting worse, or at best, staying the same.

In a Globe and Mail article from November 7, 2009, Derek DeCloet argues that instead of looking to economists who might have still been attending grade school during the recession of the 1980’s - the last recession, which most closely resembles our current economic climate - perhaps we should be looking to the history books.

DeCloet goes on to cite an article by Dan Gertner, an annalist with the industry-respected Grant’s Interest Rate Observer, in which Gertner examined the numbers from every recession since 1948. He found that the most promising sign of a receding recession wasn’t growth in the job market (a symptom of a recovered economy,) but a drop in the rate of newly unemployed, which he interprets as a sure sign of a reduction in downsizing, and a demonstration of growing confidence.

What does this mean for Canada? Currently we are showing a drop in the number of newly unemployed, and as soon as companies feel confident enough in the recovery, the rates of long-term unemployed should start to decline as well, as confidence leads to a renewed desire for growth.

So does this mean that the recession is over? The truth is that nobody really knows for sure. However one of the best tools we have to make predictions about the months ahead is data from previous recessions, and those numbers seem to indicate that the worst of the storm is indeed behind us, and calm seas lie ahead.

Leif Larsen, B.Sc.
Contributing columnist for Fehr Financial Services.