Can the economy really come roaring back from the coronavirus recession as soon as this summer, as President Donald Trump has promised?
Some economists say the answer is yes. An economy that was in good shape before the steep and sudden free-fall triggered by the outbreak just as quickly can be jolted back to life, reclaiming nearly all its former luster.
In fact, that’s largely what the massive $2.2 trillion stimulus package signed into law by President Trump Friday is intended to do: Hold the nation’s $21 trillion economy together with a kind of duct tape for a few months by providing spending money to laid-off workers and teetering businesses.
But many economists say the comeback is likely to be far more halting. Growth could pick up strongly this summer but still fall well short of its former pace, with the recession’s after-effects lingering well into next year as consumers remain skittish about venturing out to restaurants and other gathering spots. Some of the damage could even be lasting, leaving a smaller economy than would have been the case without the pandemic.
“It’s not an on-off switch,” says Jonathan Millar, deputy chief US economist at Barclays.
“I don’t think there’s any chance we get back to where we were anytime in the near future,” says Mark Zandi, chief economist of Moody’s Analytics.
Of course, the strength of the recovery hinges on the course the virus takes. It has shut down 30% to 40% of America’s economy, with nonessential businesses such as restaurants, stores and movie theaters shuttered by law or by choice and the travel and hotel industry at a near standstill. In the week ending March 21, a record 3.3 million Americans filed initial unemployment insurance claims, reflecting a staggering number of layoffs. Some economists are forecasting a similarly dire total for last week.
Under a likely scenario, top health officials believe, the outbreak could peak in May or June, allowing businesses across the country to gradually reopen by summer.
But a later peak or a virus that returns in the fall could worsen the economic damage.
It could be a swift rebound
In the best-case scenario, Senior Economist Jacob Oubina of RBC Capital Market says there’s no reason an economy placed in a coma for a couple of months to contain the spread of the virus can’t be walking around and looking like its old self once the threat has eased.
“The bounce-back can be very strong,” he says.
Until then, he believes, the stimulus can hold the economy in a sort of suspended animation. Owners of businesses with fewer than 500 employees who apply are virtually assured of receiving loans guaranteed by the Small Business Administration to pay wages and operating costs. The loan amount covering eight weeks of such expenses will be forgiven as long as the business holds on to its employees or hires back any who have been laid off, even if normal operations are temporarily shut down.
The idea: Maintain company ties with employees and avoid an enormously disruptive game of musical chairs in which workers are seeking jobs and businesses are hunting for new staffers just as the economy bubbles back to life. “I don’t have to be scrambling for people,” Oubina says.
Meanwhile, workers who lose their jobs, including contractors, are eligible for 39 weeks of state unemployment benefits that will be supplemented by $600 weekly from the federal government for four months. That means many restaurant, retail and hotel workers will be earning $1,000 a week, more than their regular paychecks in many cases, Oubina says. That, he says should allow them to make rent, utilities and other payments during the crisis and spend robustly after it’s over. Oh, and to further juice spending, most Americans, even those still working, will receive a one-time $1,200 check from the government.
And keep this in mind — the economy was on solid footing before the outbreak, Oubina says. During the financial crisis and Great Recession of 2007-09, millions of Americans had lost their homes and many were burdened by historically high debt. Banks pushed to near bankruptcy by their risky real estate loans were hesitant to lend despite government aid.
“We have none of that right now,” Oubina says.
Oubina predicts the economy will contract by an annual rate of 10% in the second quarter but then surge by 12% in the third quarter and advance a still-healthy 3% the final three months of the year and in 2021.
A slower climb may be more likely
Other economists say the rebound won’t be nearly as neat and simple. Many Americans will likely be leery of flying and going to restaurants, movie theaters and hotels even if government and health officials give a qualified all-clear signal by summer. Thirty percent of Americans surveyed say it will take at least four months after the virus spread flattens for them to go out to dinner again, while 44% say it will take that long for them to go to the movies, according to a Harris Poll survey conducted over the weekend and set to be released Tuesday.
“I’m not jumping back into the fray that quickly,” says Dagny McDonald, 53, a TV news producer who lives in Charlotte, North Carolina. “Maybe we should be a little more careful…I’m definitely on pause.”
McDonald says she’ll feel more comfortable resuming normal activities after a vaccine is ready, perhaps by mid-2021.
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In China, which is about six weeks ahead of the U.S. in the coronavirus timeline, factories, electricity demand and other parts of the economy are returning to normal but consumer spending, especially for big-ticket items, is still constrained.
The stock market’s huge sell-off, which has clobbered workers’ 401(k) plans and wealth, is also likely to make Americans warier of spending, Zandi says.
The travel and leisure industry, which Moody’s says makes up about 10% of gross domestic product, could take even longer than other sectors to recover. Fifty-seven percent of respondents in the Harris survey say it will take four months or longer for them to take a plane flight; 54% say it will take that long for them to stay at a hotel.
“People are going to be very reluctant to step on a plane,” Millar says.
Will loans arrive fast enough?
And while small businesses are can draw from the $350 billion in SBA loans, it’s not clear how quickly the government can integrate complex systems with the nation’s banks and release the money, says Ami Kassar, CEO of MultiFunding, a small business loan advisor. Treasury Secretary Steven Mnuchin says the loans will be available starting Friday. But Kassar thinks it will take at least a month to have a glitch-free system in place.
Meanwhile, he says, most small businesses have a few weeks to a few months of cash on hand, depending on the size of the enterprise.
OC Facial Care Center of Orange County, California, had to temporarily close down by state order and has laid off all six employees, says co-owner Daniel Robbins. He’ll dip into his personal savings to pay about $8,000 in rent and loan payments due April 1.
Yet, “In order to survive, we essentially have to have” the SBA loan before May 1, Robbins says.
Zandi reckons hundreds of thousands of the nation’s 30 million small businesses will shut down because they don’t know how to apply for a loan or won’t get it in time.
Baby boomers shut it down
Also, about 41% of small firms are owned by baby boomers who are close to retirement, according to Guidant Financial. Many will simply close sooner than they planned rather than go through the hassle of seeking a loan, says Jessica Fialkovich, president of a western branch of Transworld Business Advisors, a broker for small business mergers.
Anthony Whitham, 65, is learning toward shuttering Festive Cup Coffee, the Denver coffee and gift shop he co-owns with his wife, as early as Tuesday, when their lease is up.
“There’s too much uncertainty,” he says, noting the couple is financially set for retirement and their roughly 45-seat shop has been losing customers to Starbucks, which has kept its drive-thru open during the outbreak. “I’d have to get that business back from them.”
Larger companies are also at risk despite the stimulus measure’s $500 billion bailout to airlines and other industries. The share of large firms with negative cash flow — more money going out than coming in – is likely to increase by 23% after the coronavirus crisis, Goldman Sachs estimates. Although financially healthy corporations can take advantage of the additional credit recently announced by the Federal Reserve, it’s not clear if companies on shakier financial ground can do so as well, Goldman says.
At the end of this year, Zandi estimates the economy will still be 1.8% smaller than it was at the end of 2019 and won’t return to its GDP high-water mark until the second quarter of next year. Millar figures the economy will be 3.6% below its peak in 2021.
Remote work catches on, hurting construction
Some of the after-effects could lead to lasting changes that further crimp the economy over the longer term. Many companies could continue the work-at-home set-ups they’ve adopted during the outbreak, hammering office building construction, says Joseph Brusuelas, chief economist of consulting firm RSM.
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Some firms are also likely to replace corporate meetings and events with video apps such as Teams and Zoom, as they did during the outbreak, Zandi says.
John Bibbo, president of Event Source and Panache Events — which provide furniture, linens and other accessories for weddings, graduations, corporate events and other gatherings — has had to lay off all but 12 of his 160 or so employees at six offices around the country. He’s counting on an SBA loan to keep him afloat beyond the two months in cash remaining in company coffers.
But he worries about the possibility of a new reality of fewer business events. “It’s just going to be different,” he says. “It’s a big setback.”
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
