Jobs data shows eco­nomic green shoots, but more dif­fi­cult work needs to be done

Re­cov­ery will re­quire ad­di­tional help from gov­ern­ments, BOC, Kevin Carmichael says.

Calgary Herald - - FP CALGARY - Fi­nan­cial Post

The COVID-19 re­ces­sion might be over. Cana­dian em­ploy­ment in­creased by about 290,000 po­si­tions in May, the big­gest gain in Statis­tics Canada’s data set that goes back to 1976. The 1.7-per-cent surge over April blew away the av­er­age monthly change ob­served by the Labour Force Sur­vey, which showed a mere 0.1-per-cent in­crease.

Alas, it will take more than green shoots to punc­ture the gloom caused by a dis­ease that has killed more than 380,000 peo­ple, pushed mil­lions of work­ers out of the labour mar­ket, and forced thou­sands of com­pa­nies out of business.

The S&P/TSX com­pos­ite in­dex jumped on the hir­ing news, yet David Rosenberg, Bay Street’s most ubiq­ui­tous econ­o­mist, de­scribed the jobs num­bers as a “dead-cat bounce.” Rosenberg is ha­bit­u­ally pes­simistic, but he has a lot of fans none­the­less. Business and con­sumer con­fi­dence has taken a beat­ing and it prob­a­bly won’t swing back eas­ily.

Some three mil­lion jobs dis­ap­peared in Canada in March and April, an epic loss that could only be fol­lowed by some kind of a re­bound. Still, you have to start some­where, and there’s every rea­son to think that the come­back for Canada be­gan in May, when most prov­inces started re­lax­ing lock­downs.

Que­bec ac­counted for most of the job gains, a pos­i­tive sign for the rest of the coun­try be­cause Premier François Le­gault gave per­mis­sion for fac­to­ries and re­con­struc­tion sites to re­open ear­lier than most of his coun­ter­parts. The Que­bec ex­pe­ri­ence sug­gests that at least some of the ground lost since Fe­bru­ary will be quickly made up over the sec­ond half of the year.

“There re­mains con­sid­er­able ground to re­cover, with the em­ploy­ment rate still down 8.9 per­cent­age points from Fe­bru­ary, but it’s en­cour­ag­ing to see progress,” said Bren­don Bernard, a for­mer Fi­nance econ­o­mist who now fol­lows the Cana­dian labour mar­ket at In­deed, a job search site. “Dura­bil­ity of the re­bound is go­ing to re­quire Cana­di­ans to have rea­son for op­ti­mism about the out­look for the econ­omy, and the pub­lic health sit­u­a­tion.”

Get­ting all the way back to where we were be­fore the cri­sis will al­most cer­tainly re­quire ad­di­tional help from gov­ern­ments and the Bank of Canada. Con­sumer be­hav­iour prob­a­bly changed dur­ing the lock­downs, and im­por­tant in­dus­tries may have per­ma­nently shrunk. En­ergy, re­tail, hos­pi­tal­ity and tourism won’t be the same and their evo­lu­tion will dic­tate the force of the re­cov­ery.

“We know the re­open­ing process is go­ing to be long and un­even, and there could eas­ily be set­backs,” Toni Grav­elle, a deputy gov­er­nor at the Bank of Canada, said in a speech on Thurs­day. The lead­ers of Canada’s cen­tral bank are rel­a­tively op­ti­mistic, but Grav­elle made a point of not­ing it’s pos­si­ble that “eco­nomic sup­ply could re­cover faster than de­mand if busi­nesses open quickly, but con­sumers re­main cau­tious.”

The Bank of Canada set it­self up for the re­cov­ery phase with a prom­ise to keep its foot on the gas pedal. The cen­tral bank on Wed­nes­day re­it­er­ated it will con­tinue to put down­ward pres­sure on in­ter­est rates by buy­ing bonds worth tens of bil­lions of dol­lars on a weekly ba­sis un­til the “eco­nomic re­cov­ery is well un­der­way.”

Pol­icy-mak­ers also said they were pre­pared to do more if in­fla­tion, which is cur­rently around zero, fails to re­turn to their tar­get of around two per cent. Few would be sur­prised if Tiff Mack­lem, who took over as the cen­tral bank’s gov­er­nor this week, in­tro­duces ad­di­tional stim­u­lus mea­sures be­fore the year is over.

Mack­lem fought the Great Re­ces­sion as a se­nior of­fi­cial at the Fi­nance Depart­ment, and one of the lessons of that war is that sud­den eco­nomic calami­ties must be met with over­whelm­ing force, lest you get stuck with an un­der­whelm­ing re­cov­ery, such as the one that marked Barack Obama’s pres­i­dency.

Prime Min­is­ter Justin Trudeau’s gov­ern­ment hasn’t said much about its plans for the re­cov­ery. It has in­tro­duced mea­sures worth more than

10 per cent of gross do­mes­tic prod­uct, but these pro­grams, like the Bank of Canada’s ef­forts to date, were de­signed to off­set the cost of es­sen­tially stop­ping the econ­omy to slow the spread of COVID -19.

If Trudeau in­tends to pro­vide stim­u­lus, the re­sponse will be dif­fer­ent. It will also be treach­er­ous. Gov­ern­ments tend to get the ben­e­fit of the doubt when they are on the front lines of a calamity; how­ever, stok­ing a re­cov­ery will re­quire choices that won’t be uni­ver­sally popular, since some groups or in­dus­tries will get more help than oth­ers.

That prob­a­bly ex­plains, at least par­tially, why the gov­ern­ment de­cided to bring in some cover.

Navdeep Bains, min­is­ter of In­no­va­tion, Sci­ence and Eco­nomic De­vel­op­ment, on Tues­day an­nounced who will be join­ing chair Monique Ler­oux on the In­dus­try Strat­egy Coun­cil, a 10-per­son group whose man­date is to an­a­lyze the de­gree to which the COVID-19 cri­sis has al­tered the struc­ture of the econ­omy and to sug­gest poli­cies for a re­cov­ery.

Among the mem­bers are Mark Lit­tle, chief ex­ec­u­tive of Sun­cor En­ergy Inc., and Mu­rad Al-katib, chief ex­ec­u­tive of AGT Food In­gre­di­ents Inc., a big Regina-based pro­ces­sor of lentils and other pulse crops. The group will con­vene for the first time on June 8, and then meet bi­weekly un­til it sub­mits a pre­lim­i­nary re­port around the end of Au­gust.

“The cri­sis, of course, is very dif­fi­cult at this point in time for a lot of peo­ple,” Ler­oux, who ran credit union Des­jardins Group from 2008 to 2016, said in an in­ter­view on June 3. “But I think that like any kind of cri­sis, if we look at his­tory, it cre­ates an op­por­tu­nity to do things dif­fer­ently.”

In other words, Ler­oux doesn’t want to see a good cri­sis go to waste. Re­ces­sions cre­ate po­lit­i­cal ur­gency that is dif­fi­cult to muster in nor­mal times. It would be a mis­take not to take ad­van­tage of the mo­ment to make pol­icy changes that were needed any­way.

Canada had is­sues be­fore the pan­demic struck. Ler­oux said she felt the econ­omy was only “okay,” de­pend­ing on where you lived. Phys­i­cal re­tail was in ex­is­ten­tial trou­ble, too many com­pa­nies were re­luc­tant to adapt to the dig­i­tal econ­omy, and the po­lit­i­cal class was at war over cli­mate change. The sud­den stop of the global econ­omy, com­bined with the col­lapse of oil prices, ex­posed those weak­nesses.

Ler­oux was re­luc­tant to dis­cuss spe­cific fixes be­fore her group has even had a chance to meet. But she ac­knowl­edged that she thought gov­ern­ment pro­cure­ment could be a pow­er­ful tool in giv­ing a boost to promis­ing com­pa­nies, and that the re­ces­sion shows Cana­dian ex­porters re­main too de­pen­dent on the United States. She also thinks Canada could do a bet­ter job of har­ness­ing in­ter­na­tional in­vestors keen to put their money to work on re­vers­ing cli­mate change.

Trudeau won’t be bound by any of Ler­oux’s rec­om­men­da­tions, and his record of im­ple­ment­ing the proposals pre­vi­ous ad­vi­sory com­mit­tees have come up with is mixed. But that was an­other time. There was lit­tle ur­gency to fix the econ­omy when em­ploy­ment was as strong as it had ever been.

“What will help is the fact that we have the cri­sis, and that we have no choice as Cana­di­ans but to move for­ward,” Ler­oux said. “There is a great level of mo­ti­va­tion com­ing from the gov­ern­ment. That is what I feel from my ini­tial con­ver­sa­tions.”

SE­BASTIEN ST-JEAN/AFP VIA GETTY IMAGES

Cus­tomers wait out­side the Si­mons store in Mon­treal late last month. En­ergy, re­tail, hos­pi­tal­ity and tourism won’t be the same and their evo­lu­tion will dic­tate the force of the re­cov­ery from the COVID-19 shut­downs, says Kevin Carmichael.

Monique Ler­oux

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