Why there’s good news (sort of) within jobs report
A public rescue of historic proportions is the silver lining, Kevin Carmichael writes.
Months passed before a consensus formed that the Great Recession was even an economic downturn. The data slowly deteriorated, at least until Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008. That left time for equivocation.
The coronavirus crisis has arrived more like an atomic explosion than a slow-burning fuse. But at least we can do away with all the qualifiers about what’s going on in the economy.
Statistics Canada on Thursday reported that employment decreased by more than one million positions in March, wiping out all the jobs created since the autumn of 2016. The collapse was eight times greater than the previous record for job losses in a month, which was 124,800 in January 2009. It was also larger than the entire drop in employment during the downturns of 2008-09, 1990-92 and 1980-81.
The unemployment rate, which at 5.6 per cent in February was near a historic low, surged to 7.8 per cent, the highest rate since October 2010. Hours worked, an important driver of economic output, plunged 15 per cent, the biggest decline in records that date back to 1976. And, to keep us from drifting away from what really matters, the number of people who lost hours in March because they were sick spiked to 675,000, an increase of some 336,000.
“It is expected that the sudden employment decline observed in March will have a significant effect on the performance of the Canadian economy over the coming months,” Statistics Canada said. The observation is graver than it sounds, because the agency hardly ever risks interpreting its own numbers. For a take on what it really means, let’s turn to Bay Street: “Canada is now in a deep recession,” said Krishen Rangasamy, an economist at National Bank Financial.
Now what? We wait, and try to remember that all those terrifying graphs that economists are passing around on Twitter tell us nothing that we didn’t already know. Intelligent people keep writing and saying things like, “for the next couple of years at least, (Canada) won’t have much of a functioning economy to speak of.”
As far as I can tell, the pessimism is rooted in the extraordinary nature of the recession, not a clear-eyed assessment of actual conditions. Life might never go back to normal, but that doesn’t herald years of hardship. The most likely scenario remains that economies will start to reopen by the end of spring and start climbing back in the second half of the year.
That’s how investors see it. The S & P/TSX composite index rose after Statistics Canada released its first major tally of the coronavirus crisis, with investors betting that the flattening curve of newly reported cases in Europe and the United States shows the recession may be brutal, but it will be short.
“There is a light at the end of the (short) tunnel as the new number of COVID-19 cases on the planet is improving, a potential leading indicator of a positive turnaround in economic activity in the coming weeks and months,” Sébastien Lavoie, chief economist at Laurentian Bank Securities, said in a note to clients.
China is edging back to normal, and Austria, Denmark, Czech Republic and Norway have all announced plans to ease lockdown restrictions this month. “Until some restrictions are lifted in Canada, several financial bridges and tax breaks announced by governments will contribute to support income and ease financial stress,” Lavoie said.
That last part is important. The benefit of watching an epic collapse unfold in real time is that policy-makers and politicians aren’t left with time to ruminate and pontificate over what to do. The silver lining around the jobs numbers is that the epic decline will be met with a public rescue of historic proportions.
The Bank of Canada has already slashed interest rates to effectively zero, and when that wasn’t enough, it started creating billions of dollars to buy bonds. The federal government has promised to spend more than $100 billion on various measures, including a subsidy that will cover 75 per cent of most distressed companies’ wages. It has also promised tax deferrals and low-interest loans worth tens of billions of dollars more.
None of this will fully offset the economic loss from entire industries being forced to close overnight, nor will it guarantee that the economy will revert to what it was in February. But, unlike recessions past, the blow to households and companies will be cushioned almost immediately. Prime Minister Justin Trudeau’s rescue efforts have been hesitant, but he will still have put more foam on the runway than any of his predecessors.
It might also be worth keeping in mind that the economy still has a pulse. Simon De Baene, co-founder and chief executive of Groupe Gsoft Inc., a Montreal-based business software maker, told me last week that he’s still hiring. The shift to a digital economy won’t be slowed by the coronavirus; it might even be accelerated.
Retailers such as Loblaw Cos. Inc. and Dollarama Inc. have given their front-line employees temporary raises. And companies involved in agriculture and other resource industries actually added workers in March, Statistics Canada said.
“Our order book is very solid,” Chuck Magro, chief executive of Nutrien Ltd., the Saskatoon-based potash miner, said in an interview last week. “All of our operations are running as per our original plan,” except for the introduction of social distancing and other safety measures, he said. “We haven’t seen any significant curtailments of production.”
A fertilizer company isn’t representative of the broader Canadian economy. But Nutrien is a reminder that some foundations remain in place. The 2020 crop is on its way to being planted at the very least.