More than a century ago, with the world in the throes of the Spanish flu pandemic, business in Little Rock, Arkansas, was not exactly booming.
Companies in the state capital were losing more than US$130,000 a day on average, a report by the Federal Reserve Bank of St. Louis found. Perhaps the only exception was the drug store — and the mattress sellers.
“Bed rest is emphasized in the treatment of influenza,” reported The Arkansas Gazette, according to the Fed’s summary. “As a result, there has been an increase in demand for beds, mattresses and springs.”
It was a difficult time, and one in which there are echoes today, as a global health crisis threatens to unleash an economic downturn of unknown depth.
So far, more than 200,000 cases of the novel coronavirus have been reported to the World Health Organization, and more than 8,000 deaths.
Global recession has gone from being a far-off possibility to a near certainty, and some are even raising the spectre of a worse fate.
“We are facing a period of profound adversity unlike any we have since the 1930s,” Alberta Premier Jason Kenney said Thursday.
While not all are willing to entertain the possibility of an economic depression, the question of just how bad is this going to get is very much in play.
We are facing a period of profound adversity unlike any we have since the 1930s
Jason Kenney
From a health point of view, we have not reached the dark days of the 1918 pandemic, which killed millions. In a city like Philadelphia, “bodies lay along the streets and in morgues for days, similar to medieval Europe during the Black Death,” according to the Fed report.
The same flu outbreak “paralyzed” the Canadian economy, according to the federal government, which was so harshly criticized at the time it was prompted to create a national health department.
But health care has modernized, governments are preparing to unleash billions of dollars in stimulus spending, and there may be a lot of pent-up demand to boost the economy when the pandemic finally subsides.
“It’s a valley, and it’s going to be a painful valley,” said Craig Alexander, chief economist at audit firm Deloitte Canada. “It’s going to take us time to get to the other side. We don’t want businesses and individuals to lose track of the fact that ultimately we will get to the other side of this pandemic.”
We don’t want businesses and individuals to lose track of the fact that ultimately we will get to the other side of this pandemic
Craig Alexander
A light at the end of the tunnel can be a welcome sight. However, it still involves going through darkness, and some of the biggest names in capitalism are warning of a gloomy future.
Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, estimated on CNBC that global corporate losses could add up to US$12 trillion. Billionaire investor Bill Ackman has warned of a “Depression-era period” in the U.S. unless a vaccine is manufactured and distributed widely. A JPMorgan Chase and Co. note predicted the U.S. economy will shrink in the second quarter by 14 per cent.
“For all intents and purposes we are in global recession territory,” Fitch Ratings declared in its latest forecast.
A recession is typically viewed as six months of economic decline while a depression is seen as a downturn lasting years. Current predictions are leaning more towards the former than the latter, but that can make it no less grim.
Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal didn’t mince his words: Things will get much worse for Canada’s economy before they get better.
Week-to-week, Tal’s call for a recession has now evolved into one forecasting a deep recession where GDP contracts by six per cent in the second quarter of 2020 and another three per cent in the third quarter before starting a slow rebound. The unemployment rate will rise as high as 7.5 to eight per cent and translate to a loss of about 400,000 jobs while bankruptcy rates rise by 40 per cent.
“We will not get a green light until we have a vaccine which is a year or a year and a half away,” Tal said.
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That timeline is what’s stopping Tal from invoking the possibility of a depression. The term, Tal said, is only used appropriately when there appears to be no end in sight to an economic downturn. While Tal admits that a vaccine could be delayed beyond the current 18-month horizon, the end of this cycle would still be tied directly to its creation.
Projections being given now are assuming the health crisis clears up at some point. However, Tal’s “nightmare scenario” could come to light should health officials have to face the possibility of reinfection. Should that occur, the economy would undoubtedly be grounded for a longer period of time, meaning that it may very well take an equal amount of time to get it rolling again.
The longer the crisis persists the more strain the economy is likely to come under. The Canadian Federation of Independent Business said 50 per cent of small firms had already reported a drop in sales as of last weekend, with one in four warning they would not be able to survive a significant drop in income for more than a month. Having entire countries under lockdown or with their populations trying to stay as far away from each other as possible could produce cash crunches for firms.
Inside an almost empty Eaton Centre in Toronto on March 17.
Jack Boland/Toronto Sun/Postmedia Network
A drawn out downturn, especially one accompanied by an economic shutdown, could also cause problems for the companies that have, in the background of a bull market, loaded up on debt and gone through multiple rounds of share buyback programs, according to economist and former deputy Bank of Canada governor William White.
“The worst case would be that there’d be a shakeup on that side,” said White, who is now a senior fellow at the C.D. Howe Institute. “That would have big repercussions and could feed back into the financial system and then you’ve got the kinds of problems we’ve seen before in 2008.”
This scenario could be even more grim than the shock that threatened the global banking industry in 2008, White said, because financial imbalances have been allowed to build up for an additional 12 years. The markets and ratings agencies would begin to lose faith in these overlevered firms as they see credit spreads widen, he said, and these debtors could soon find themselves incapable of paying back what they owe.
A flare burns off excess gas from a gas plant in Texas.
Angus Mordant/Reuters files
One hard-hit sector has been oil and gas, as there is a war being waged at the moment over crude prices, which were already being watered down because of a COVID-19-related drop in demand. A Desjardins Capital Markets report released Thursday called the coronavirus-oil price war “the one-two punch no one needed,” adding that, at US$30 per barrel, “there are few companies that have free cash flow, implying that further cuts to capex and dividends are likely if the current environment persists.”
In other words, investors have already had to stomach a lot so far, and may still have more to digest. Citigroup Inc. analysts this week said they see global earnings per share falling by at least 20 per cent this year.
What happens in the stock markets may not always reflect what is going on in the economy. But Deloitte noted in its latest Canadian outlook that “negative wealth effects from the correction in equity markets could also dampen spending,” as people may not be so willing to make a big purchase if they’re not feeling quite so rich anymore.
The silver lining is the suddenness of the coronavirus crisis and the annihilation of share prices has prompted markets to price in the profit recession much faster than in previous downturns. Stocks even rose on Thursday, a rare occurrence of late.
“It has been very painful, but the rapid downward adjustment in equity prices may make this one of the shorter bear markets in stock market history,” the Citi analysts wrote.
Traders work on the floor of the New York Stock Exchange on March 18.
Bryan R. Smith/AFP via Getty Images
While they noted “economists are not epidemiologists,” Deloitte and Alexander see the virus eventually burning itself out. Their call is for the Canadian economy temporarily contracting in 2020, but then returning to growth full-time in 2021.
White also said the responses from global governments and central banks so far have convinced him that they’d be willing to continue to act should the downturn worsen. Among other things, Ottawa has announced a credit program that could provide more than $10 billion of support to businesses through Crown lending agencies.
“Nothing can be ruled out, but I think if we remember the lessons learned from the Great Depression, it’s that there’s a lot that can be done to fend off the worst outcomes,” White said. “The governments have got to step up and be prepared to use fiscal policy in a way that perhaps will seem adventurous to some.”
VANCOUVER – Canada’s labour minister says striking grain terminal workers in Metro Vancouver and their employers have reached a tentative labour deal.
Steven MacKinnon announced the agreement between Grain Workers Union Local 333 and the Vancouver Terminal Elevators’ Association in a post on social media platform X, but provided no other details.
The union confirmed the tentative deal in a statement on Facebook, saying its members will conduct the ratification vote by Oct. 4.
The notification from the union also says picket lines were to be removed Saturday and members will return to work pending ratification, ending the strike that had paralyzed grain shipments from Metro Vancouver’s port.
The dispute had previously led to picket lines going up at six Metro Vancouver grain terminals on Tuesday as about 600 workers went on strike.
Canadian grain producers had urged a resolution in the dispute, noting about 52 per cent of the country’s grains moved through Metro Vancouver terminals last year en route to being exported.
Farmers say the strike, happening during crop harvesting, would result in as much as $35 million per day in lost exports.
The Western Grain Elevator Association said on Friday that talks had stalled after two days of negotiations this week, with the employer saying it had increased its offers to settle “outstanding issues.”
The employers group had said they’ve reached the end of their “financial ability to conclude an agreement that industry can absorb” with the last offer, and it was up to the federally appointed mediator to report the results to MacKinnon for the next steps.
MacKinnon says in his tweet that both parties put in “the work necessary to get a deal done.”
This report by The Canadian Press was first published Sept. 28, 2024.
TORONTO – Canada’s main stock index dipped lower Friday despite strength in energy stocks, while U.S. markets were mixed as the Dow eked out another record but tech stocks dragged.
The mood Friday was mixed after a strong week for equities in both Canada and the U.S., said Andrew Buntain, vice-president and portfolio manager at Fiduciary Trust Canada.
The S&P/TSX composite index closed down 77.01 points at 23,956.82, one day after it . It closed over 24,000 for the first time on Thursday.
The strength this past week wasn’t just in North American markets, noted Buntain, as Chinese stocks enjoyed a rally after the country’s central banks announced a suite of measures intended to boost the economy.
Meanwhile, an undercurrent of broadening strength continued this week as investors spread out their interest beyond a narrow set of tech giants, said Buntain.
“Some of the sectors that have been ignored for several years have been some of the better performers this year,” he said.
“We’re very encouraged by that.”
In New York on Friday, the Dow Jones industrial average was up 137.89 points at 42,313. The S&P 500 index was down 7.20 points at 5,738.17 after setting an all-time high on Thursday, while the Nasdaq composite was down 70.70 points at 18,119.59.
A report Friday on one of the U.S. central bank’s preferred measures of inflation — the personal consumption expenditures price index — showed continued cooling.
The Federal Reserve started lowering its key interest rate last week, and is expected to keep going this fall and into 2025.
However, the Fed’s next interest rate decision isn’t until November, noted Buntain, so there’s plenty of data for the central bank to take in yet — including next week’s labour report.
The job market has been an increasingly key focus for the central bank after recent reports showed cooling in that area of the economy. Friday’s report also showed consumer spending in August didn’t meet economists’ expectations.
In Canada, where the Bank of Canada is set for its next rate decision later in October, Friday brought a GDP report that was a little stronger than expected, said Buntain.
“The Bank of Canada has already delivered three cuts and signalled maybe some further reductions,” he said.
If inflation continues to move lower, Buntain added, the Bank of Canada could even announce an outsized half-percentage-point cut, echoing the Fed’s move last week.
The Canadian dollar traded for 74.08 cents US compared with 74.22 cents US on Thursday.
The November crude oil contract was up 51 cents at US$68.18 per barrel and the November natural gas contract was up 15 cents at US$2.90 per mmBTU.
The December gold contract was down US$26.80 at US$2,668.10 an ounce and the December copper contract was down four cents at US$4.60 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 27, 2024.
OTTAWA – Statistics Canada says real gross domestic product grew 0.2 per cent in July, following essentially no change in June, helped by strength in the retail trade sector.
The agency says the growth came as services-producing industries grew 0.2 per cent for the month.
The retail trade sector was the largest contributor to overall growth in July as it gained one per cent, helped by the motor vehicles and parts dealers subsector which gained 2.8 per cent.
The public sector aggregate, which includes the educational services, health care and social assistance, and public administration sectors, gained 0.3 per cent, while the finance and insurance sector rose 0.5 per cent.
Meanwhile, goods-producing industries gained 0.1 per cent in July as the utilities sector rose 1.3 per cent and the manufacturing sector grew 0.3 per cent.
Statistics Canada’s early estimate for August suggests real GDP for the month was essentially unchanged, as increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.
This report by The Canadian Press was first published Sept. 27, 2024.
