Canada’s labor market is setting records. So why are people talking about a recession?

Canada’s unemployment rate has never been lower. Employers are adding jobs and hiring the few workers who haven’t yet been gobbled up. GDP growth in Canada is also better than any other G7 country.

However, the economic narrative in this country is dominated by pessimism.

In fact, Google Trends results show that searches for the word “recession” have increased dramatically in Canada, even as the economy continues to grow.

“I think it’s a bit of an exaggeration,” said Pedro Antunes, chief economist at the Conference Board of Canada. “I think obviously bad news tends to get more traction in the discussion.”

But, he says, the economy is in very good shape.

In fact, Canada’s economy is benefiting from some of the same things that consumers worry about, even as they pinch your pocketbook.

High world oil prices are driving up its cost at the pumps, but it is acting as a boost to Canadian GDP. Sky-high food prices mean you’re paying a lot more at the grocery store, but they’re boosting revenues for Canada’s huge agricultural industry.

Canada specializes in some of the resources that are scarce globally right now, including oil and agriculture. (Charlie Riedel/The Associated Press)

Still, fear and uncertainty around rapidly rising inflation are driving the negativity, Antunes said, noting that sentiment matters, because negative expectations can quickly turn into “self-fulfilling prophecies.”

“If enough people think the economy is going to tank, and enough people think the stock markets are going to tank, and enough people think the housing market [is going to tank]then they will,” he said.

The Ripple Effect of Consumer Confidence

Consider this chain of events: Consumers are worried about a possible recession. They reduce their purchases. They decide to save some money instead of buying that new appliance. Or car. Or jacket.

If you scale that down to the population of Canada, those worries about a recession may actually cause the economy to slow down even more rapidly.

Last month, Bank of Canada Governor Tiff Macklem highlighted his concern that the erosion of consumer confidence could do real damage.

“If the economy slowed sharply and unemployment rose sharply, the combination of more indebted Canadians and higher house prices could amplify the recession,” he said.

So the Bank of Canada is just as concerned as you are, but they also have a lot more data than we do.

This week, the central bank released two key surveys, looking at the confidence levels of Canadian businesses and Canadian consumers.

Both reports highlighted the negative impact of inflation and concerns that high prices will remain high for a long time.

But the Business Outlook Survey also highlighted the resilience of consumer demand at the moment.

“Backed by strong demand, many companies intend to increase investment spending and add staff,” the bank wrote as part of the survey overview.

In other words, even with inflation concerns, many Canadian companies believe consumer demand will remain strong enough to justify new investment and new employees.

New jobs figures available Friday

While the May employment figures brought Canada’s unemployment rate down to a record low of 5.1 per cent, the large number of jobs created in June is likely to have slowed. (Those figures will be released on Friday.)

But that’s not because companies need fewer workers.

“We expect Canadian job growth to slow to 15,000 in June, driven by a shrinking supply of workers rather than a lack of demand,” RBC economist Nathan Janzen wrote in a report published earlier this week.

“The number of job openings is down, but is still nearly 70 percent above pre-pandemic levels.”

So more Canadians than ever are working, their wages are rising (though not as fast as inflation), and the economy continues to grow.

So should we ignore concerns about where we are headed? Absolutely not.

Just as the weather was heating up, May employment figures brought Canada’s unemployment rate down to a record low of 5.1 percent. (Helen Pike/CBC)

“We are increasingly concerned that a conjunction of headwinds, coupled with [debt] imbalances in the household sector could push the Canadian economy into recession,” Tony Stillo, director of Oxford Economics, wrote in a research paper published on Wednesday.

“We still see a soft landing as the most likely outcome for the economy, but we estimate that the probability of a recession in the next 12 months has risen to around 40 percent.”

Most forecasts still show the Canadian economy growing through 2022 and slowing to near zero near the end of the year. It’s a precarious situation emerging after some of the most volatile years in decades.

The pandemic overturned all our expectations. Almost everyone assumed that an economic shock like the one we saw in the spring of 2020 would trigger a recession unlike anything we had seen since the Great Depression.

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But households and businesses were kept afloat by an unprecedented wave of government support.

Experts then said that the end of the pandemic would lead to a surge in spending the likes of which we had not seen since the Roaring 20s.

Once again, the forecast missed the mark as COVID-19 refused to abate and consumers stayed home.

Given the uncertainty of the last two and a half years, who can blame households today for looking past all the good economic data and focusing on the negatives of what may lie ahead?

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