Columns

Time for a recession?

Ross Laver May 11 1998
Columns

Time for a recession?

Ross Laver May 11 1998

Time for a recession?

Ross Laver

The unemployment rate is gradually falling, housing sales are revving up and Canadians—those outside of British Columbia, at any rate—are once again starting to feel good about the economy. Whatever can it all mean?

Why, it must be time for another recession, of course. Sounds crazy? Not if you make your living studying that strange and wondrous phenomenon known as the business cycle. In the topsy-turvy world of economists and money managers, good is bad and bad is good. A declining jobless rate, in other words, tends to lead to an increase in personal incomes, which heightens the risk of inflation and pushes up interest rates. That causes businesses to cut back on expan-

sion and discourages consumers from spending. Presto: the economy goes into the tank. They don’t call economics the “dismal science” for nothing. Granted, inflation isn’t a problem now in either Canada or the United States, in part because the Asian debacle has sliced deeply into world demand for raw materials and energy. But those who be-

lieve the good times are nearing an end can still point to all manner of worrisome indicators, from an excessively frothy stock market to the recent wave of bank megamergers on both sides of the border. On Wall Street, veteran money managers are tossing around phrases like “bubble economy” and “asset-price inflation.” Scary stuff, that, particularly if you happen to be up to your eyeballs in debt and heavily invested in stocks and stock-based mutual funds. In this market, that describes millions of middleclass Canadians.

On that rather depressing note, here’s something else that might be worth fretting about. For the first time since the late 1980s, the job market for journalists in Canada is looking healthy.

The reason this is bad news has to do with the business cycle. When the economy is in the dumpster and consumers are reluctant to open their wallets, companies naturally look for every possible means of saving money. In addition to laying off staff and cancelling plans for new factories or stores, they

People who think the good times are almost over can point to all sorts of troubling indicators also cut back on advertising. When that happened in 1991 and 1992, newspapers and magazines across the country slammed on the brakes. Dozens of smaller publications were driven into the ground. Elsewhere, layoffs and hiring freezes took hold as media companies struggled to cope with declining revenues and record losses.

The economy as a whole started to pick up in 1993, driven largely by increasing U.S. demand for Canadian exports. But the balance sheets of Canada’s big media corporations remained in dismal shape until late 1996. That’s because ad spending is what economists call a “lagging indicator”—it tends to follow changes in the overall economy, for the simple reason that most companies try to avoid shelling out big money on advertising unless they

themselves are feeling prosperous. Hence, media company profits are also lagging indicators. They generally hit their peak late in the cycle, when other parts of the economy are already beginning to slow down or slip into reverse. Think of it this way: when was the last time anyone in Canada launched a major newspaper? Answer: 1988, just as that decade’s boom

was drawing to a close. That’s when the Toronto Sun Publishing Corp. decided to transform the weekly Financial Post into a daily. Good on them, but too bad about the timing. For eight solid years, the Post lost money—an estimated $100 million in total before the paper finally made it into the black.

A decade later, the newspaper business is positively jumping. Both the Halifax Chronicle-Herald and The London Free Press have recently sprouted Sunday editions. Québécor Inc., which owns tabloids in Montreal, Quebec City and Winnipeg, is talking about buying one or more newspaper chains in the United States. Maclean’s, The Globe and Mail and numerous other publications have expanded their reporting and editing staffs. And Conrad Black is getting ready to launch a new national newspaper, the first since the Post. Pay levels are rising in the industry and optimism is everywhere.

Remember, you read it here first. When journalists are in demand, the next recession can’t be too far off.