A world recession watch sparks do-it-yourself economics: Don Pittis

Has it ever been so hard to know our economic future?

Probably, yes. But in an era when economic commentators offer contradictory views, it certainly feels as ifthere is no one to trust on the important issue of whetherthe world is going to hell in a handbasket.

Perhaps it is one more reason why people are no longer satisfied with accepting the views of experts. They want to examine the evidence themselves.

That certainly seemsthe case with recent predictions that the world is heading forrecession.

Thrown a curve

Here at CBC News,viewer attention to economic stories has been high, including attention to whathas been considered a relatively obscure economic indicator: the relationship between interest rates on long-term bondsand rates over the short term.

There are many ways of interpreting the logic of why the inverted yield curve might be a gloomy indicator, as we have outlined in thisexplainer.

There are also a number of reasons why that indicator alone may be an imperfect guide towhat is around the corner. And economic sleuths, whether they are professionals or do-it-yourselfers, face the same set of difficulties.

That's why in order to grasp what comes next, Canadian economy-watchers remain in suspense over each new economic indicator, including this coming Friday's big one, thejobs numbers. So what have we learned lately?

And last week's trade numbers, while showinga shrinking surplus, found that was due to an increase in both exports and imports. It's just that imports grew a little more, often a sign of a strong domestic economy.

It's different this time

Inverted yield curves are far from a sure orimmediate sign of economic decline. One argument is that while yields inverted before the last five recessions, the weirdworld economy means something quite different is happening this time.

Last week that view was supported byformer U.S. Fed chair Janet Yellen,who expects no recession this year, and by the head of the New York Fed John Williams, who says of the inverted curve, "There's a lot of reasons to think that it has been a recession predictor for reasons in the past that kind of don't apply today."

Economic writer Javier Davidmakes the case that in the past a cutback in government spending has been the real reason for the recessionary effect. With spendthrift Donald Trump as U.S. presidentand the MMTDemocrats theorizing that it is OK to keep the government wallet open so long as there is no inflation, it is possible austerity won't happen, at least before the 2020 presidential election.

So far there has been little sign of inflation, which in the past has been the first link in the chain to a recession caused by steadily rising interest rates. There has been lots of debate over why that is and if it could change.

Even for those convinced that the yield curve is a sure predictor of recession, history supports Yellen'sconfidence that rate cuts will not be needed in 2019. That's because even when recession follows inversion, the recession does not follow immediately. In fact, on average the two events are about a year and a half apart.

Also, the reason economics is so different from real sciencestudying, say, fish behaviour, is that in our case the fish know they are being studied and can change their economic activities based on the published results. After all the innovations developed after 2008, central banks are certainly not trapped doing the things the way they did in the past.

Real-world problems

While technical indicators such as bond yields may provide a warning when the world is trudging through economic business as usual, it does seem that right now real-world events should have a much bigger potential impact.

Despite the fact that the Canadian economy is so closely tied to that of the U.S. it is clear that our economies are not in lockstep. The Canadian housing market has repeatedly defied foreign critics. Freer immigration has been credited with spurring the Canadian tech sector. Our trade deal with Europe should gradually begin to tell.

The fact that GDP was so strong in face of a continued decline in that old stalwart of the Canadian economy, resource extraction, shows something may bechanging.

Perhaps policies such as high education spending, increasedminimum wages and government investment in technology are having the salutary effects we have already seen in northern Europe.

For economy watchers, this Friday'slabour force survey will deserve special scrutiny. Since the data is collected in the weeks before the release, it is a fresh economic indicator.

It also says something real about the future, since employed people have more money to spend and contribute more in tax.A decline in job creation maybe another hint recession could be in the offing. Of course, to be absolutely sure we'll have to wait for the next statistic. And the next after that.

But to end on a happiernote for April Fools'Day, here is a guy who has turned the inverted yield curve into music.

Follow Don on Twitter @don_pittis