PREDICTING THE NEXT RECESSION, PART 1
Let’s be clear about one thing: economic expansions do not die of old age. There has to be at least one reason–but often there are many–why the business cycle reaches the apex of its growth phase before stalling and moving downwards. One such suggested reason is a slowdown and decline in total hours worked, with there being some evidence of this metric’s predictive value when it comes to recessions in Canada. The year-over-year change in aggregate hours worked fell and/or became negative
immediately preceding each of Canada’s four recessions since the early-1980s. However, aggregate hours worked also did the same thing 3 other times during this period without a recession following. After spiking in 2018, hours worked has since slowed, indicating that an economic slowdown could be near. Having said that, the entirety of the evidence insofar as hours worked are concerned, combined with the observation that the latest data points are in fact trending upwards, hints at continued economic growth in Canada for the foreseeable future.
THE FEWER HOURS WE WORK, THE MORE LIKELY A RECESSION?
CHANGE IN QUARTERLY HOURS WORKED AT MAIN JOB REAL QUARTERLY GDP CHANGE RECESSION
SOURCE: LABOUR FORCE SURVEY & SYSTEM OF NATIONAL ECONOMIC ACCOUNTS, STATISTICS CANADA
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