5 indicators we're reaching the recession tipping point: Don Pittis

This week hints of a global recession came fromMontreal. Speaking at McGill University, the new boss of the World Bank, David Malpass, warned the global economy is heading to fresh lows.

"In June, the World Bank Group forecast that the global economy in 2019 would grow at 2.6 per cent, the slowest pace in three years," said Malpass. "We now expect growth to be even weaker than that."

If you've heard that a recession is six months or more where a national economy shrinks, those numbers don't sound too ominous. That's until you realize that for years the International Monetary Fund considered global growth of less than threeper cent equal to a worldwide recession.

In a one-two punch, the new head of the IMF also issued a warning.

"The global economy is now in a synchronized slowdown," said Kristalina Georgieva, who took over fromChristine Lagardeon Oct.1.

But it may not be the experts' predictions that matter per se, so much as the fact that they, and so many other people, are talking about recession.

Such gloomy views, uttered by officialsat the highest level, may be one more signal that despite what still appears to be a vigorous economy inCanada, we really are teetering on the brink. Even people denying a recession is coming may contribute.

Contagious worry

The technically minded among us like to look for hard mechanistic warnings, such as the inverted yield curve, to tell us a recession is around the corner. But this time that bond market signal, where short-term interest rates creep higher than long-term rates, may be a cause as much as an independent indicator.

Many experts have expressed the view that with central banks manipulating long- and short-term rates, both of which remain near historic lows, the yield curve is not the recessionary portentit once was.

But what the yield curve warning did do was increase the one thing that is well known as a precursor of recessions: that is, growing worries about recession.

Despite a passion for math and charts and graphs, it is increasingly accepted that economics is not a science like physics but the study of a social process, with money as the unit of measure.

As in other communal phenomena, this monetized sociology is a product of how we react to each other, and while recessions often have anexternal trigger thattakes the blame, there isevidence that arecessionary moodgrowsuntil we hit a tipping point of the kind described by Canadian author and social analystMalcolm Gladwell.

"The tipping point is that magic moment when an idea, trend, or social behaviour crosses a threshold, tips, and spreads like wildfire," wrote Gladwell in his book The Tipping Point.

If that applies to recessions, then economic indicators such as declining investment, trade hostility, a drop in manufacturing, plus declines inconsumer confidence, retail sales and employment are not cause-and-effect, but co-variables.

Thinking recessionary thoughts

That means the best indicatorof recession are signals we are thinking about recession. Here are five possible telltale signs.

1. Personal finance advice

The growing number of articles on the business pages telling you what to do with your money to prepare for recession. People who have money and move it to safer placesmay directly cause the economy to shrink. But even for those without liquid investments to move around, the warnings helpspread the idea that recession is coming.

2. Corporatedownsizing

Big companies, including this week the financialgiant HSBC, announcingplans to lay off staff in anticipation of harder times. The global bank, one of the first to batten down for the Great Recession of 2008, saysit plansto cut 10 per cent of its employees, despite having a healthy balance sheet. Watch for whether it spreads to competitorsand other industries.

3. The R-word

An early recognitionof the tipping-point concept was theR-word Index proposed by the Economist magazine decades ago, which demonstrated mentions of the word recession in newspapers grew when recessions approached. That crowdsourced indexhas been updated and broadened byGoogle Trends, where searches that include the wordrecession themselvesbecome recessionary indicators. The Washington Post reports that such searcheshave now reached 2008 levels.

4. Empty shop fronts

This is an indicatorwe can check in ourneighbourhoods. In a retail strip I frequent, suddenly the number of empty store fronts has noticeablyincreased, helping to share a gloomy mood. Not even nail salons are moving in. It's a down-home sign people don't think it's time to begin a risky venture.Do your own research.

5. Penny pinching

The other local thing you can watch for in your office or home life iswhat one commentator recently called "the rise of the petty bean-counters," the feeling that with bad times around the corner it is time to cut back on stationery, office parties or personal luxuries. As well as pulling morale down, when we all cut back onspending itshrinks the entire economy, potentially crossing Gladwell's tipping point threshold and spreadinglike wildfire.

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