Politicians hoping to jolt the economy back to life might be in for some disappointment when they discover governors can let businesses reopen but they can’t force people to patronize them.
This week, governors in states like Florida and Georgia are moving to reopen bowling alleys, nail salons, and dine-in restaurants in an effort to get economic life moving again. And an organized campaign by conservative economic interests is underway to lift restrictions faster in more places.
This will be an experiment, of course, but the best available evidence casts doubt on the idea that enough customers will return to make it possible for small businesses to stay viable without additional government assistance.
For example, we know customers began abandoning America’s restaurants before they were ordered closed, that the handful of states that have avoided broad lockdown orders are still feeling economic pain, and that huge swaths of the economy that have not been shut down are nonetheless experiencing a precipitous decline in sales.
This restaurant in Los Angeles is selling groceries to stay afloat during the shelter-in-place order.Amy Sussman/Getty Images
The problem is a question of fear. Americans fear spreading or contracting infection, so much so that they’ve overwhelmingly participated in social distancing measures. They tell pollsters by wide margins that they fear lifting those restrictions too soon much more so than too late. They’re willing to stay put even if it harms the economy.
They also fear economic hardship. That’s led prudent people, even those left relatively unharmed by the downturn so far, to delay nonessential purchases, like new cars, appliances, clothes, and other goods.
Whatever choices state officials make about opening things up, there’s not going to be a vibrant economy until real steps are taken to address those dual sources of fear.
The online reservation booking service OpenTable has thoughtfully provided the public with data on reservation volume in every city where they operate. The conclusion: There are some reckless people, but the typical human being is not that interested in risking her life for a dinner out.
This table shows, day by day, how much reservations and seated walk-ins fell from the day one year before in a range of domestic and global cities. And it demonstrates clearly that bookings were tumbling in all kinds of places before mayors and governors ordered their restaurants closed.
Estimates show a 100 percent decline in seated diners at restaurants in OpenTable’s network by the end of March, year-over-year.OpenTable
In Atlanta, for example, Mayor Keisha Bottoms announced on March 19 that she would ban in-house dining at noon on the following day. By that time, OpenTable bookings had already fallen by over 90 percent.
This is not purely an American phenomenon. In Ireland, the national restaurant association itself called for a closure order on March 16, citing overcrowding in some pubs. The government swiftly took their advice, but OpenTable bookings in Dublin had already fallen by 71 percent.
When states start to allow restaurants to resume sit-down service, some customers will come back. But it seems many won’t.
The restaurant business is competitive. It operates on low margins, with new restaurants infamously prone to failure. And as with many businesses, the fixed costs of operating a restaurant are relatively high. You need to pay rent and utilities, and you need to cover other overhead like insurance and the interest on loans you took out to get the business started in the first place. Forcing these businesses to stay take-out only indefinitely will force them to close without government help, but letting them reopen for sit-down dining only marginally changes the calculus as long as customers are wary of actually showing up.
I asked a half-dozen restaurant owners from DC to Austin to central Pennsylvania if their businesses could survive the 20-30 percent decline in bookings that OpenTable was showing before the shutdown started. The only one who thought he could owns the building he operates in, giving him lower operating costs than a typical restaurateur. To save the industry, governments need to actually address the virus. Until that time comes we need to put restaurants on life support — simply letting them reopen empty isn’t going to work.
Beyond restaurants, the Trump administration’s relatively aggressive opening plan will still leave large segments of the economy largely shuttered.
In particular, Trump’s “Phase 1” plan — echoed by Republican governors — calls for white-collar workers to continue working remotely and calls for Americans as a whole to continue avoiding “non-essential” travel. Those are reasonable steps of caution that will continue to take a hammer to the economy. It can’t be fixed by reopening personal service businesses.
Hotel vacancy rates, for example, had already fallen by 25-50 percent as of mid-March while revenue per booked room fell by a third. This isn’t going to recover until people are told it’s safe to travel again. At $218 billion in annual revenue, the hotel industry is nearly triple the size of the combined hair and nail salon industries.
The $171 billion dollar airline industry is not currently shut down and thus can’t be “reopened” by fiat, but passenger volumes have fallen by 95 percent in the US. That’s an enormous loss to a large industry, plus secondary losses to related businesses like airport shops and rental car companies. As of a month ago, taxi companies in New York had lost two-thirds of their customers. And while New York City was unusually hard hit by the virus, it also has by far the lowest car ownership rate of any place in the country and thus the largest share of people who may have no better option than to hop into the back seat of a stranger’s car.
By the same token, the International Air Transport Association’s survey data indicates that just 14 percent of the public say they’re likely to resume flying as soon as restrictions are lifted — with 40 percent of the population saying they’re likely to wait six months or more.
Here’s the full chart on the @IATA survey showing that 40% of pax will wait 6+ months post-lock down before traveling. Note that it also shows slipping confidence from the February version. Not good news for airlines or associated industries. #AvGeekpic.twitter.com/c43cZHzFfX
Travel businesses, in other words, are hampered by people’s reasonable fears of infection and aren’t poised to come roaring back the moment restrictions come off.
Similarly, while keeping office workers home wherever possible is sensible, it has inevitable knock-on economic consequences. Downtown lunch spots have no customers if nobody is working downtown. People don’t need to get clothing dry cleaned as frequently if there are no business meetings. And office management companies will shed janitorial staff if there’s nobody to clean up after.
And with large segments of the economy ailing, simple lack of money is going to be an increasingly prominent problem.
This is about to get worse. The Center on Budget and Policy Priorities predicts that state governments are facing a bigger hit to their budget than what we saw during the Great Recession of 2008-2009. Local government data is harder to come by, but it should be roughly in line with what states are seeing. When state and local governments lose revenue, they need to cut spending — furloughing workers or reducing benefits and widening the share of Americans who experience lost income. The same CNBC poll showed that 65 percent of Americans worry that their incomes will fall, and they should be worried.
What people do when their income falls— or when they fear that it might fall — is cut down on big-ticket purchases. They decide to forget about their plan to renovate the kitchen, and they hang on to their existing cars until they become completely unusable rather than upgrading.
This is what we’re seeing right now. New car sales are plummeting even though dealerships are still open to sell cars. Some of this could be the inconvenience or fear of going to a dealership, but dealers are trying hard to offer people good options for contactless home delivery and opportunities to test drive. Financing offers and other deals are excellent right now because inventory is piling up and dealers want to move it.
The problem is that one family’s spending is another family’s income. And while there’s nothing wrong with being prudent, a whole national cycle of prudence is self-defeating. One prudent family doesn’t buy a car, so the salesman doesn’t buy a fridge, so the appliance workers lose shifts. Declaring that we can all risk our lives to go to the movies next weekend doesn’t alter the basic dynamic.
What proponents of a quick reopening are hoping for is a better economy that works without further stimulus or intervention. That’s just not realistic.
Even plans to “reopen” involve keeping large swaths of the economy on ice. The travel sector isn’t currently shut down but it’s almost completely collapsed anyway. Reopened restaurants and personal services like hair and nail salons won’t get all their customers back as long as the virus is still circulating. Devastation to state and local budgets is already baked into the cake. And many people are losing income and paring back on unnecessary spending, prompting further rounds of lost income.
There’s no way out of this that doesn’t involve curing the dual fears of infection and income loss. The former requires real public health victories, not just vague assurances. And the latter requires much more in the way of financial support for ailing businesses, local governments, and households.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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