Unprecedented

Definition: Never before seen or done. Unheard-of. Having no previous example. Something that has not happened before.
Have we ever before experienced a situation in which 3 million people in the Canadian labor force lost their jobs in a three-month period?
Have we ever before experienced a situation in which the consumer price index has increased seven-fold from 1.1 per cent to 7.7 per cent over a three-month period?
Have we ever experienced a situation that, within a couple of months, caused the complete collapse of one sector of the economy?
The answer to each of these questions is “No, it has never happened before.”
In light of this fact, why are so many economists, politicians and others pretending to understand what is happening now and what will happen next? How do they know?
Your humble reporter has been struggling mightily with this for a while now. Even at the best of times, with the benefit of historical precedent and the ability to look back at similar situations, neither my learned colleagues nor myself have aced it when it comes to forecasting what is about to happen in the economy.
There are more unprecedented happenings than just those above. Never in our lifetimes have we had to deal with a pandemic than has disrupted and continues to disrupt the carefully crafted-over-decades global “just-in-time” production supply chain that created efficiencies that led to low prices and reasonable profits. Never in our lifetimes have we had to try to understand and deal with the phenomenon of consumers rapidly shifting their spending from the most stable sector of the economy – the service sector — to the goods sector when the service sector collapsed because of the pandemic.
How much hubris does it take for people-who-don’t-know to blithely pronounce that recession or stagflation or market collapse or whatever is on the horizon? Even more worrisome, how many people listen to these views of the future and take personal decisions that may or may not be in their best interests? I’m not suggesting that recession or stagflation or whatever is NOT in our future. I am saying that on the basis of past history, WE DO NOT KNOW. More than that, because of the lumpiness of economic statistics, even two quarters of negative GDP – the classic definition of recession – may not signify a recession this time round.
If by chance or logic I have convinced you that you should not be paying much attention to the headline pronouncements, the next question is, “What should we be paying attention to so that we can plan our financial future?”
My answer is that first and foremost, sound financial habits should be second nature. Having some financial goals, a budget and a plan still works. Having only as much debt as you can comfortably repay still works.
Some things you read or hear might be a guide to the future, but you’re going to have to put it together yourself. For example, China’s coal imports from the U.S. in the first half of 2022 decreased by 67 percent from the same period last year. Meaning? Much of China’s production of steel is in lockdown. Coal is used to make steel. Will products made of steel be in short supply and will that raise prices? Maybe.
Pay attention to things that continue to disrupt the global supply chain. Many companies are scrambling to have shorter, closer-to-home sources for the products they make and sell. Think about whether this restructuring will make things more or less expensive for you to buy. The prices of many commodities are unstable because of supply chain disruptions (either war-induced or pandemic-induced.) One commodity – labor – is undergoing its own repositioning for another reason. The share of national income going to labor is rising after decades of losing out to capital. This is an imbalance whose time for correction has come. Inflation will fall when commodity prices fall or just stop rising.
Let’s try for being logical and not assume that current news foretells the future.
Dian Cohen, C.M., O.M., economist
cohendian560@gmail.com
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