The Canadian economy is showing signs of a fragile rebound as provinces ease lockdown restrictions, suggesting that the worst of the damage inflicted by the COVID-19 pandemic is over – provided that the outbreak is contained in the months ahead.
New job postings are popping up. Manufacturing plants are coming back online. More retailers are opening their doors. And more consumers are opening their wallets.
“The worst has passed, in the sense that we can see economic activity reviving,” said Eric Lascelles, chief economist at RBC Global Asset Management.
When official numbers come in, it’s likely that April will represent the nadir of the economy’s collapse and May the beginning of its recovery. This month, consumer sentiment has perked up, albeit from a record low, and business confidence has markedly improved since the early days of provincial lockdowns.
With each passing week, more and more companies are allowed to resume operations. Nearly 40 per cent of small businesses are fully open, up from 21 per cent in late April, according to recent survey results from the Canadian Federation of Independent Business (CFIB). More than 50 per cent of businesses are fully open in New Brunswick, Prince Edward Island and Saskatchewan.
More are on the way.
For example, The Wickaninnish Inn in Tofino, B.C., is preparing to reopen on June 15 with all staff rehired. In a typical summer, the boutique hotel is booked solid. Not this year. “If we hit 60-per-cent [occupancy], I’ll be happy,” said managing director Charles McDiarmid. “I’m looking at this year as a business person saying, ‘If we break even, I’ll consider it a plus.’ ”
In some industries, there’s only room for improvement. New vehicle sales in Canada plunged 75 per cent in April from a year ago as many dealerships were forced to temporarily shutter.
“We know for a fact that May is better [than April], but we don't know how much better,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants. “I suspect that this year, after being cooped up for possibly months, people are going to want to get out and go places.”
To some degree, that’s already happening. Mobility tracking data from Google Inc. and Apple Inc. suggest that Canadians are getting out of the house more, whether by foot or car, as weather warms across the country.
In turn, consumption is improving. Consumer spending plummeted nearly 30 per cent in April from a year ago, according to transaction data from Royal Bank of Canada credit- and debit-card holders. However, during the last half of the month, there was a partial rebound in spending that should strengthen into May as more shopping options become available.
“I have to think economic activity is running at a hotter rate [in May] than it was in April, because a big chunk of spending would appear to be back,” Mr. Lascelles said.
In particular, RBC found that spending on household goods – which covers furniture, appliances and home improvements – is now stronger than before the pandemic. Big-box retailers such as Walmart Stores Inc. and Home Depot Inc. have cashed in, reporting sharply higher revenues in the first quarter.
Of late, Canadians are searching Google more for “realtors” and “new cars.” This “implies that some pent-up demand for big-ticket purchases and housing is building among those that have been relatively unaffected by the outbreak,” Bank of Nova Scotia strategists said in a recent client note.
The real estate industry could use a jolt. National home sales fell 58 per cent in April from a year earlier. Agents in Toronto and Vancouver say activity has picked up in May, but is still tracking toward massive declines from 2019.
Construction is faring relatively well – at least for now. Excluding Quebec, where the industry was significantly curtailed during the height of the crisis, housing starts increased in April. The dynamism could be short-lived: Canada Mortgage and Housing Corp. said Wednesday that home building could sink as much as 75 per cent this year from peaks in the first quarter.
As some industries return before others, people are shifting their job searches. Hiring site Indeed Canada said there’s been a recent surge of queries for outdoor work, in both landscaping and agriculture. New job postings have picked up recently, although total listings are still down by nearly half from a year ago.
Despite signs of improvement, RBC’s Mr. Lascelles warned of a “gradual accumulation of suffering” that could hold back the recovery. Many companies have incurred hefty debt to survive, and are now reopening to weaker sales. Although pessimism is fading, 43 per cent of small businesses still say they are in bad shape, CFIB said Thursday.
Total railway carloads have slipped lower in recent weeks, in large part because automotive shipments collapsed with production on pause. The outlook for North American auto production is “relatively dismal,” Mr. DesRosiers said, given weaker vehicle demand and potential supply chain disruptions.
At the household level, there are worrying signs. Google searches for “unemployment benefits” have eased, but those for “bankruptcy” are rising. About 15 per cent of banks’ mortgage holders have deferred payments, setting up a potential wave of financial distress this fall.
“I do have some anxiety about the risk of a double dip [for the economy] or a double peak [in virus cases],” Mr. Lascelles said. “The risk of recurrence seems non-trivial.”
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