Is Canada in a Recession or Not? Weak Economic Data vs. Packed Malls

Weak economic data. Packed shopping centres. Dave and Ben discuss how both can be true.

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What’s weird for me is I’m in Toronto last weekend. I went to the Eaton Centre. It was packed. Like, I am talking packed. Every restaurant I went to when I was there for the weekend, packed. So how do we reconcile the economic data looking weak, recession being, uh, used, the word recession, all of these figures we’re hearing, and yet some of the evidence says the exact opposite

Yeah, it is an interesting time. The data is very clear that the economy in aggregate is soft, the labour market in aggregate is soft. There’s a concept of like a, uh, like a K-shaped economy.

I’m a believer in that.

Well, I am too. I’m coming around to that view. There was a time where I was not, but you are seeing a situation where, and just maybe to explain it to the, the viewers and listeners, the idea of a K-shaped economy is that if you’re in kind of that upper income bracket, the top quintile, let’s say, times are pretty good, right? The economy’s very good for people who still have money. Where it’s really hurting people is at the lower end of the income spectrum.

We can kind of corroborate that in some of the data. Like, if you look at some of the publicly traded companies that skew towards that kind of low-end discretionary, they’re reporting very soft sales. and at the same time, some of those more kind of luxury-focused brands are doing pretty well. And so you are seeing that within the data.

I think a lot of it’s being captured in the observation that you’re posting. Um, the reality is that, that the basics of life, the cost of living, food, right, uh, just the the price have gone up so much. And so which, which households tend to spend more disproportionately on, on those sort of basics of, of life?

It’s the lower income, and I think those are where it’s really being felt.

And, I’m with you. I mean, I’m always skeptical of these overly simplistic kind of, uh, things we come up with to describe the economy, like the K-shaped economy, but I have come around to it too. I mean, there’s a lot of data supporting it, and I think that when you look at that upper echelon of income, they’ve also had the money over the years to set aside and invest in stocks, invest in other assets.

And for the most part, until relatively recently, those have been very, very solid performers, and that’s helped them on the wealth effect front too, and it made it more likely they’re going to spend. Where right now, with the cost of living being what it is, a lot of people can’t save. They can’t set aside that extra money, and I think that the problem’s being exasperated to some extent with the cost of living challenges we’re up against.