Why there’s good news (sort of) within jobs re­port

A pub­lic res­cue of his­toric pro­por­tions is the sil­ver lin­ing, Kevin Carmichael writes.

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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.

CHRISTINNE MUSCHI/BLOOMBERG FIL

Si­mon De Baene, CEO of soft­ware maker Gsoft, says he’s still hir­ing. COVID-19 won’t slow the shift to a dig­i­tal econ­omy, says Kevin Carmichael.

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