It has been almost a month since Central Bank Governor Ewart Williams in his presentation of the Monetary Policy Report was quoted as saying, "The economy has been in a slump and we are waiting on the recovery and the recovery has been delayed."
Who would have thought that this concise statement would trigger weeks of commentary, headlines, news reports, interviews, letters to the editor and a ridiculous debate about whether we are in a "slump" or not. For a moment there, it felt like we were all in Tony Deyal's column Funny Business.
Economies naturally transition between periods of expansion and periods of contraction.
Traditionally, there are four stages in an economic cycle: expansion, prosperity, contraction and recession.
After a recessionary phase, the expansionary phase can start again; however the length of each stage in the cycle can vary. An economic cycle can have a brief recessionary phase but an extended expansionary phase, or vice versa. The full duration of the stages of an economic cycle can only be known after the phase has actually been concluded. But factors such as the levels of employment, interest rates, GDP growth, industrial productivity, consumer spending, capacity utilisation, business profits and investment spending can help to determine the current stage of the economic cycle.
But what is a slump anyway? The term "slump" is really just used to describe a period of slowing economic activity or a downturn phase in the economic cycle. Now we can argue the semantics and technicalities of the dreaded "R" word versus a slump, but by the standard "rule of thumb" definition a recession would be two or more quarters of negative GDP growth. As described by the Governor, "our situation is even more serious, in that we have had negative growth for three years." Based on the economic textbook definition, we would be considered to be in a recession.
But we each individually may not feel a recession or slump in the same way or even in the way that economists and policymakers may describe. For most of us, a recession will be defined on a personal level as a decline in our family's income or spending power. In some cases this may be the result of retrenchment or job loss and in other cases it may mean either rising cost of living or declines in our emolument income.
Although the unemployment rate has been improving, moving from 6.3 per cent to 5.2 per cent over the nine-month period ended September 2011, the number of persons with jobs actually declined by 13,000 from approximately 591,000 in December 2010 to 578,000 in September 2011 (this is the most recent data). This is the beauty of statistics, we have less people actually having jobs but the unemployment rate is improving. This contradiction exists because the supply of labour or the number of persons available to be employed shrank faster than the number of people becoming unemployed. The labour force is that part of the working-age population participating in work or actively job searching; this excludes retired people, students, and people not actively seeking work or unavailable for work. It would be interesting to understand what goes into this calculation. Statistics are a helluva thing!
The reality is that by the time we have compiled and measured two or more quarters of data we would have already lived thru the period being defined... meaning that the period has come and gone. Economic data is essentially historic information, thus we are debating something that has already happened.
Imagine you are driving a car… but instead of looking through the windscreen to steer… you keep looking at the rear view mirror at the road that you have just passed that is behind you… You can well imagine how dangerous this will be if you tried to steer looking backward instead of looking forward… This is the trap that we can find ourselves in if instead of focusing on the road ahead of us we remain fixated on the recent past.
The debate about if we are in a recession, slump or otherwise is a futile one that will certainly take us on a slippery slope. What is more important is the economic policy decisions that we must take now in order for us to avoid a prolonged recession in the future.
A rise in the level of unemployment is usually an indication that the actual growth in the economy has fallen below the potential of the economy to grow. It is this potential that has to be our focus. The energy sector has been and will continue to be critical to the growth and development of our nation but our singular reliance on this sector is unsustainable to our long-term development.
Our policymakers must make wise choices TODAY on how to allocate the wealth generated from our energy resources in order to build industries and venture that provide both foreign exchange income and employment for generations to come. This is the critical debate!
The one slump that we truly must avoid at all costs is the decline in strategic and critical thinking that will lead to macroeconomic solutions that would allow Trinidad and Tobago to be a competitive, growing and diversified nation for many years to come.
Let us take our eyes off of the rear view mirror and instead squarely focus on the twists and turns in the bumpy road ahead. We know that the journey will be long and arduous but like any good driver in a strange land we must navigate and map out the route to our destination if we are to have any hope of finding our way.
Before I close, let me leave you with a joke of my own. When your neighbour loses his job, it is called an economic slowdown. When you lose your job, it is a recession. But when an economist loses his job, it becomes a depression. Hope that puts a smile on your face, a thought in your mind and takes your day out of a slump. Live richly!
Jason Julien is a Financial Analyst and Registered Trader with the Securities Exchange Commission can be contacted at: email@example.com or followed on Twitter at: @julienomics
DISCLAIMER: THE VIEWS AND OPINIONS EXPRESSED HERE ARE SOLELY THE VIEWS OF THE WRITER AND DO NOT NECESSARILY REFLECT THE VIEWS AND OPINIONS OF THE PUBLISHER OR ANY OTHER COMPANY OR INSTITUTION AFFILIATED WITH THE WRITER IN ANY WAY.