The warning bells have been sounding for several months that a recession is imminent due mainly to U.S. President Donald Trump‘s trade war.
There are key indicators of when an economy like Canada’s has entered a recession including consistent declining growth, weakness in the labour market, as well as falling consumer and business confidence.
There are also overlooked symptoms that can help paint a picture of underlying economic weakness including consumers choosing cheaper options at the grocery store to rising demand for career upskilling.
Depending on who you ask, there are also some long-held theories dating back decades about what other economic indicators could be that a recession is imminent, from changes in skirt hemlines to lipstick and men’s underwear sales, and even rising cases of diaper rash.
But first: what actually is a recession?
What defines a recession?
Tariffs imposed on virtually all nations by the U.S. combined with counter-tariffs are creating pressure on governments and businesses to diversify trading partners and adapt supply chains to minimize the impacts.
Consumers are expected to bear the brunt of the trade war with the majority of economists and business experts predicting higher costs for goods and services, which will lead to an inflation spike.
Higher costs have a ripple effect on overall economic growth as companies pull back on investing in new projects and developments.
The most widely-used gauge of economic activity is gross domestic product (GDP), the total financial value of all goods and services produced in the country during a specific period.
Although many factors are considered, the strongest indicator of a technical recession is when GDP shows a decline for two consecutive quarters, or a six-month period.
The latest measurement of GDP by Statistics Canada released last month showed the economy grew in January by 0.4 per cent, which was the largest monthly gain in almost a year.
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The report for February is due on on April 30, and will include an estimate for what to expect in the March report.
The February reading is expected to show no change from January, indicating the economy may be slowing down.
“(First quarter) growth is tracking around two per cent,” says economist Marco Ercolao at TD Economics.
“Past this, the outlook is turbulent,” he says, suggesting the trade war is expected to throw a wrench in things.
The labour market is another recession gauge as companies may slow or even stop hiring altogether if the economic outlook is dim.
More recently, unemployment has been rising as jobs disappear.
Not to be confused with a depression, which is much more severe and prolonged, a recession can last a few months to a few years, and can often be corrected in a relatively shorter period.
Recent examples include the Great Recession of 2007 to 2009 and the COVID-19 recession of 2020.
Where else can we see signs of a recession?
Many of the more accepted economic indicators of a recession, such as the data showing two quarters of consecutive GDP decline, come weeks or even months after consumer and business behaviour actually shifts.
That leaves room for speculation and theories about what could signal a recession is currently underway, before the bigger economic indicators show the technical data.
On social media like TikTok, ‘Recession Indicators’ is a trending topic, in addition to conversations around dinner tables and at the water cooler.
Depending on where you look, there are clues often found in plain sight.
During the COVID-19 recession, many workers made a change in their careers or their professional development, and it wasn’t unique to this period.
“Any time that the economy pivots, it’s going to create new jobs that never existed before and it’s going to destroy jobs that might’ve existed for a very long time,” says economist and lecturer Moshe Lander,
“So it’s usually when times are tough that people are willing to make that jump because they have less to lose.”
Consumer habits are also signs of changes in the economy, including at the grocery store.
“When you look at food, it is a very easy category to trade down, with the expansion of discount grocers that we’re seeing now kind of proving this,” says Sarah Bartnicka, who writes the Milk Bag newsletter covering Canadian business, current affairs and culture.
There are also more old-fashioned anecdotal theories, which have mostly been disproven, but still sometimes come up during recession talks, as well as one theory that suggests parents struggling to afford the basics for their children may cut back on diapers.
The so-called “Diaper Index” describes the theory that in bad economic times, some parents and caregivers may try to save money by over-extending the life of diapers, or not be able to afford enough diapers to change their baby’s as often as they normally would.
“That’s the type of thing that gives diaper rashes,” Lander says about the theory.
“So you can see an uptick then in the number of visits to the local pediatrician to try and deal with just some basic problems that wouldn’t happen if you didn’t have to worry as much about where the next paycheque was going to come from.”
Some other dated but often discussed theories include the so-called “hemline index,” which is the theory that skirt lengths supposedly get shorter in good economic times and longer in bad. There is also the “men’s underwear index,” which theorizes that underwear is the first thing men hold off on replacing during bad economic times and start replacing once things turnaround.
Another theory is the so-called “lipstick index,” believed to have been popularized by the leadership team at cosmetics corporation Estée Lauder after seeing an uptick in lipstick sales during the 2000s recession.
“The logic was that lipstick is relatively inexpensive, and when people feel uncertain about themselves, they tend to kind of cover up,” says Lander.
“So lipstick might be one of those things to try and at least project confidence in uncertain times … you buy something a little cheap but a little flashy.”
Ultimately, there’s no clear data suggesting any of the theories are an accurate measurement of a recession.
Together, though, they may represent attempts to try to make sense of economic trends that can be hazy in the short term, and only become clearer later on.
Statistics Canada, policy makers, economists and financial experts alike will not be using hemlines, lipstick sales, or instances of diaper rash to categorize whether or not the country is in a recession anytime soon.
However, anecdotal indicators may have a powerful effect on consumer confidence, which central banks factor into interest rate policy decisions.
“I would just caution against sounding too many alarm bells until we see real data,” says Sarah Bartnicka.
“There’s just so much uncertainty right now. And I think the way that people are feeling is a reaction to that. But it’s very important not to overreact.”
