Is the Economy Back to "Normal"?

Chatter about the economy over the past several years have been punctuated with what now sounds like a lot of clichés. Economic crisis. A rollercoaster market. Financial panic. Heightened level of uncertainty. Ever since the housing downturn in the US in 2007, economic news has been abnormally negative. Now that we’re closing in on the second quarter of 2012, is it finally time to quit speaking in such alarmist tones?

Is the economy back to normal? Consider the evidence.

Equity markets around the world have calmed considerably and the erratic volatility that rocked stock valuations between 2008 and 2011 have mostly subsided. Sure, there’s still the occasional day when markets in Toronto or New York are up or down more than triple digits, but those movements are rarer. The NASDAQ is hitting 14 year highs, and the New York Stock Exchange is leading the global advance, finally back to where it was prior to the big downturn. This is all very encouraging to investors and households, who are no longer quite as fearful of losing their shirt and retiring broke.

The situation in Europe remains a mess. But at least it is no messier than it has been over the past few years—and arguably, it’s in better shape. Recent agreements in Europe around the Greek debt have left many investors quite grumpy, and certainly Greece is a basket case. Debt in Italy and Spain hasn’t gone away, either. Still, uncertainty about an imminent collapse of the European financial system has subsided a bit. Even the media seems to be tiring of events on that side of the Atlantic, and the less people focus on troubles in Europe, the more remote those troubles will seem.

The Federal Reserve in the United States is sounding more upbeat about the state of the American economy, and Chairman Ben Bernanke has signalled that a third round of quantitative easing is improbable. In other words, the Fed is now less inclined to drop another panicky bomb of cash on the US economy in a last-ditch effort to stimulate spending. The patient remains in intensive care, but is at least off life support. The priest who was ready to read the Last Rites to the poor ol’ US economy has been sent home. Some traders are even betting that interest rates will start to rise before 2014 after all, breaking the Fed’s forecast.

China continues to lead global economy expansion in 2012, but even here growth is moderating—and that may be a good thing. Nine months ago, the big worry was that growth rates in the Middle Kingdom were running out of control, and inflation and asset prices were set to crash the party. Now, growth forecast for this year has been lowered to 7.5% (down from 8%)—a reasonable pace of growth that perhaps offers a bit more stability.

Canada’s economy is sputtering at the moment, particularly in central Canada. Still, an outright recession is unlikely, and it’s altogether “normal” for different regions in the country to grow at different rates. In the 1980s and 1990s, it was Ontario that was booming while Alberta and the West lagged. This decade, however, the West is clearly in the economic driver’s seat. The Canadian dollar has been remarkably stable over the past year and suddenly a 95₵ loonie is considered “weak.”

If you consider the overarching themes in the Canadian economy at the moment, they feel more “normal”:  governments are fighting deficits, battling Ottawa over health care transfers, and sparring with Europe and the US over trade issues. The big news stories are no longer financial panic and economic Armageddon. They’re robocalls and play-off hockey.

Perhaps the question isn’t “Are things back to normal?” – but rather, what IS normal? Certainly the go-go days in 2006 and 2007 were not normal in Alberta. Three percent unemployment and fast-food restaurant closures due to lack of workers is neither typical nor desirable. Today’s 5% unemployment is balanced. Our provincial government is running a small deficit, but favourable energy prices will probably save our collective hides. Again!

The economy will always hold some suspense, but it does appear that 2012 will be marked by far less fear and uncertainty for the global economy. Even in “normal” times there are interesting events going on.

And for economists who make a living by writing and commenting on the economy, that’s a good thing! A boring economy is bad for job security.