There were few, if any, economic commentators in this country who saw 2020 coming. I was among the didn’t-see-it-comingest.
Here’s what I wrote about the coronavirus at the end of January, when the outbreak in China was making financial markets increasingly nervous:
“The financial markets are bracing for the coronavirus outbreak to seriously infect the Canadian economy. The reality is more likely to be a case of the sniffles.”
In my defence, I did say that in the unlikely (okay, not so unlikely) event that the world was hit with a pandemic on the scale of the 1918 Spanish flu, World Bank models suggested it would slow the global economy by about 5 per cent. As it turns out, world gross domestic product looks to be down about 4 per cent in 2020. Hey, we’re actually doing better than expected!
Let’s just agree that a year ago, what we thought we would be watching in the economy in 2020 turned out to be all the wrong things. And the right things to watch were unimaginable.
As we enter 2021, some of the more useful gauges of the recovery will be things that were barely known, or barely noticed, before we entered this pandemic. Here are a few of the indicators that I’ll be watching, as I try to do a better job seeing the way out of the COVID-19 crisis than I did seeing the way in.
The key to the early weeks of 2021 will be how successful the second-wave lockdowns are at keeping people away from each other – and how big a bite they take out of economic activity in the process. Google Mobility reports – which use anonymous data from Google Maps to track traffic volume and visits to businesses – are a terrific day-to-day indicator of the lockdowns’ impact.
Google Mobility proved invaluable in the first wave of the pandemic, when it quickly became clear that traditional economic indicators weren’t timely enough to keep up with the fast-changing situation. It may be less useful in the second wave; we’ve gotten better at working, shopping and conducting business remotely, so changes in physical movement might not equate to changes in economic activity as much as they did last spring. Nevertheless, the mobility reports will deliver fast evidence of both the impact of the lockdowns and the speed of the reopening.
So far in this recovery, we’ve seen employment snap back surprisingly quickly; but behind those headline job numbers, total hours worked haven’t nearly kept pace. As of November, total employment had recovered to within 3 per cent of its prepandemic level – but hours worked were down 5 per cent. That drop in hours illustrates the dramatic loss in demand and output in the pandemic. Even if employment continues to narrow the gap with its precrisis levels, the hours-worked numbers will be a more meaningful gauge of how much of the road to recovery still lies ahead.
A critical measure of the economy’s health is the output gap – the difference between what the economy has the capacity to produce and what it’s actually producing, which has widened dramatically in the pandemic. The output gap is also central to the Bank of Canada’s assessment of when it can start to scale back the policy measures that it put in place early in the crisis.
Normally, Statistics Canada’s quarterly industrial capacity utilization report is a useful indicator of the output gap. Third-quarter data, released in mid-December, showed industry operating at 76.5 per cent capacity – down from more than 80 per cent before the pandemic, but a rebound from just 70.7 per cent in the lockdown-plagued second quarter.
But in the COVID-19 recession, the hardest-hit sectors have been in service businesses (think restaurants, tourism, entertainment), not the goods producers who are covered by the industrial capacity utilization data. We’ll need to be a bit more creative to get a read on the services sectors.
OpenTable’s statistics for restaurant seatings – drawn from its digital reservations system and tracked daily – provide a timely snapshot of how full restaurants are compared with prepandemic levels. Monthly airline capacity data – available from individual airlines and Statistics Canada – give a similar glimpse into air travel.
A key factor in the economy’s ability to fully regain what it has lost is the degree to which businesses survive the pandemic. Business failures represent what economists call capacity destruction – permanently lost output that reduces the overall capability of the economy to produce goods and services.
So far, incredibly, insolvency rates are actually lower than they were before the pandemic – testament to government support programs that have helped businesses stay afloat. But the second wave of the pandemic will test businesses’ staying power when many – especially in the hardest-hit sectors – are still on their knees from the first wave. Should those insolvency numbers start to climb significantly, that would signal a serious threat to the recovery.
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