Are we at (or about to hit) a turning point?

Over the weekend, I listened to the former head of the U.S. Bureau of Labour Statistics, Erica Groshen, calmly explain that revisions to payroll data are really normal and that, when an economic “turning point” is underway, margins of error and revisions always increase because imputation on past trends becomes much, much harder. It’s a great interview and you should listen to it for background to understand the full, and very dark, implications of firing the eminently qualified head of the agency, Erika McEntarfer, only to replace her with a partisan hack. While I would love to rage-nerd-out on the value of non-partisan professional leadership of unified statistical agencies (which Canada still enjoys), I want to focus more on the idea of an economic “turning point”.

In a recent post, Paul Krugman notes that the early indicators in the U.S. suggest that stagnation has taken hold and inflation is likely coming. Let me summarize Krugman with a meme:

So what about us, up here, in Canada?

I dunno. I don’t do forecasting.

No really. I don’t know.

I have been tracking forecasts from others. Like this one from March from the European Parliament’s Economic Governance and EMU Scrutiny Unit (based on pre-Liberation Day and pre-August rate changes)

Or this one, from May, from the Organization for Economic Cooperation and Development and specific to Canada:

Or this, from the Bank of Canada in July.

None of them are amazing. They all seem to be suggesting that Canada is in for a rough road.

Whether that's a temporary or enduring reality is unknown. I would note that none of the forecasts above seem to have contemplated the possibility that the current CUSMA (ok, “USmaca” if you prefer… I’m Canadian and I can’t get riled up over translations) would be cancelled during the forecasting horizon. And that’s probably fair: CUSMA is in place until June 30, 2036, and the review process on renewal is scheduled to launch by June 30, 2026. That’s if parties don’t voluntarily agree to an acceleration to the review, which some seem to be suggesting as a strategy. This is also if Trump and U.S. institutions can be expected to abide by the revocation terms set in the agreement itself. Again, I have no crystal ball. My main argument here is that it’s past time to prepare for a “turning point” in our own economy.

We have 9.2% more workers on E.I. regular benefits than at the same time last year. And that’s just the share who apply and make it through the myriad rules and hoops.

The employment rate (the count of population that is working divided by the count of population) is down for all age groups, relative to this same time last year.

Obviously many folks will zero in on the precipitous decline in youth employment.

Sidebar: As the director of a work-integrated professional graduate program and the mother of three, I see you, I hear you, I salute you. The problem is that the decline in the rates of youth employment clearly pre-dates Trump. Something happened in the post-COVID reopening that generated a bit of a lock-in, where new entrants were less welcome and (look at the employment line for the 55-64) older workers held on to what they have. An aging set of decision-makers in office and those giving them advice is, sadly, unlikely to see this as a pressing problem. But for the youth experiencing it, and the families supporting them, it is a pressing problem and it could have longerterm repercussions for us all.

On the other hand, the effective rate of U.S. tariffs has been remarkably low for Canada, relative to other countries.

But should we expect this (waves hands) to continue? Or, should we act in anticipation of a turning point?

I am writing this after listening to the most recent episode of The Curse of Politics pod. It’s not normally a policy or economic podcast, but I think the panelists do a good job of presenting some of the partisan ideological diversity on the question of what else, if anything, Canadian governments can and should be doing in the current environment (note: ready your earmuffs if you dislike cursing… it IS in the show’s title..).

The natural tendency of government is to react, which means waiting for the bad thing to happen and dealing with it then. That’s probably not wise in the context of the combined economic uncertainty and geopolitical uncertainty. In other recent economic downturns, we could count on continuity in the relationship with our largest trading partner. Now… not so much. They ARE the uncertainty.

Another natural tendency is to make small, incremental change, reserving money and effort for later, just in case. That’s largely been the case in the modest changes to the E.I. system to make it a little, but not hugely, easier to access for laid-off workers and for employers to enter into or renew E.I.-subsidized work-sharing agreements to reduce lay-offs. In a widespread “wait and see” mode, that may have worked for now. Will it keep working?

Since at least January, there have been some calls for much bolder spending on pandemic-inspired programs like a wage subsidy and much easier access to EI with far more generous benefits. But there is a bit of a strawman argument starting to take hold to the effect that any calls for support for workers must necessarily mean spending hundreds of billions in federal money on a CERB-style program.

Asside: Of course, everyone forgets that within the $210 billion spent on temporary federal pandemic benefits, nearly half was paid to employers where the Auditor General noted that the Canada Revenue Agency instituted too few controls to limit ineligible payments. The CRA is still pursuing repayments of CERB and other benefits to individuals. Individuals are much easier to go after.

Getting ready for a potential “turning point” in our economy doesn’t have to mean spending tens or hundreds of billions in pandemic-like programs designed to temporarily keep everyone afloat. The fact is that, if lay-offs continue, more Canadians are likely to turn to E.I. If we want to reduce lay-offs while businesses pivot, there may be more pressure on the work-sharing wage subsidy. As I will keep saying, over and over and over again, until someone, anyone listens to me, there are lessons from the pandemic for program design and delivery that we can and should finally learn. There are systems-level changes that can and should have been made (but hey, no time like the present), so that programs can be smarter, better targetted and more effective with taxpayer dollars.

This isn’t the sexy stuff of “Buy Canadian” (more on that in my next post), but it’s arguably more important if we really are about to hit an economic turning point and we don’t really know what the other side of the corner looks like.