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Inflation has tumbled in recent months. The jobs market continues to hum along. Yet if you ask Canadians how they are feeling, the overwhelming answer is miserable.

Why is there such a disconnect between the state of the economy as measured by many standard indicators and the public mood about the economy? There is no simple explanation, but the gap between the two is getting hard to ignore.

The Conference Board of Canada declared this week that its indexes of consumer and business confidence have fallen to their lowest levels since the pandemic. It added that a sizable majority of Canadians – 61 per cent – say the country is already in a recession.

Economic turmoil is pushing people toward despair, according a poll published this week by Mental Health Research Canada. Nearly four in 10 of the 3,819 people it surveyed said economic issues are affecting their mental health.

These are disturbing numbers. However, they are difficult to explain by pointing to some obvious economic emergency.

Yes, it’s true that Canada’s output flatlined in the second quarter. However, that was in part a reflection of massive forest fires. On most economic measures, Canada still seems far from desperate.

Unemployment, for instance, continues to hover close to multi-decade lows. Wages are growing at a healthy 4- to 5-per-cent clip. Stocks are up this year; so are home prices.

The only major economic variable that is plunging is inflation and that is exactly the one that we want to be plunging. Total consumer price index inflation – and, yes, that includes both food and energy prices – has slid to 3.3 per cent, less than half its peak of 8.1 per cent in June, 2022.

So what’s going on here? Why have people turned so much gloomier than the standard numbers would suggest is reasonable?

One theory is that it has something to do with the anxiety-inducing impact of inflation. Consumers hate seeing their salaries and savings corroded by rising prices. Maybe they are still struggling to adjust to the vicious ups and downs of inflation over the past couple of years.

This seems plausible. It doesn’t explain, though, why the dramatic plunge in inflation in recent months hasn’t brightened the mood.

A more disturbing explanation for the boom in gloom is that many Canadians are worried about how rising interest rates are going to affect their ability to keep up with mortgage payments.

This, too, seems like reasonable grounds for distress. However, it also seems a trifle premature. Many homeowners are still benefiting from low-rate mortgages they negotiated during the pandemic. By the time their current mortgages expire in a year or two, there is a good chance that the Bank of Canada will have chopped rates.

This brings us to a more comprehensive theory: Maybe Canadians are growing glum because it is now becoming obvious that many of Canada’s structural problems are getting worse, not better.

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One obvious example is home prices. They have moved far beyond the buying power of many households, according to Royal Bank of Canada’s affordability calculations. While rising interest rates may have slightly cooled parts of the market, home ownership remains out of reach for most young Canadians.

Policy makers talk about this problem endlessly, but do little to actually address it. Nineteen months ago, the Ontario government’s housing affordability task force delivered 55 recommendations to boost housing supply. So far, the province has implemented only three of them, according to economist Mike Moffatt of the PLACE Centre, an Ontario-based think tank dedicated to encouraging sustainable communities.

Ottawa is also fumbling the ball. It talks up its commitment to housing affordability, but remains wedded to a supersized immigration strategy that is overwhelming the country’s supply of housing.

The immigration strategy seems designed to boost Canada’s economic output, or gross domestic product (GDP), by rapidly increasing the number of people in the country. However, it does nothing to improve the standard of living for individual Canadians. The key factor there isn’t Canada’s total amount of GDP but rather its GDP per capita – how much output there is per person.

Remarkably, Canada’s real GDP per capita hasn’t budged in six years. This may surprise you. On paper, the country’s output has shot up by nearly 33 per cent since 2017. But as Mr. Moffatt points out, once you deduct the impact of inflation and population growth, all the apparent growth disappears.

The long stagnation offers one excellent reason for why Canadians may be feeling down despite an economy that is still chugging along nicely on many fronts.

The question now is what happens next. Bank of Montreal economist Benjamin Reitzes pointed out in a note this week that Canadian living standards have risen steadily over the past six decades thanks to rising GDP per capita. The only times that real GDP per capita did not grow over a six-year period since the 1960s were in the early 1990s, the pandemic – and now.

“Perhaps it’s time to re-examine Canada’s economic policies and priorities,” Mr. Reitzes wrote. Amen to that.

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