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.
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.”
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.