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Watching Friday's jobs data for the dreaded K-shaped recovery –



“We’re all in this together” has a friendly reassuring tone. Used by Prime Minister Justin Trudeau, Ontario Premier Doug Ford and many others, it reminds Canadians that in the time of COVID-19 everyone is suffering.

But a new letter in the alphabet of recovery patterns implies that the happy phrase may not be true. Friday’s jobs numbers will offer another bit of statistical evidence to help fill in the picture.

As early as May, economic thinkers were sketching out four recovery shapes based on the letters V, W, U and L.

V was generally considered the best result as the economy bounced right back. The gloomiest was the L-shape that implied we were going to go down and stay there for a while.

K is not for cohesive

The K-shaped recovery is not quite as doom-laden as an L, but it may be worse for a cohesive society.

The K shape is no miraculous economic invention; it’s merely shorthand for the idea that hardship is not shared equally. It suggests that rather than a single path that we all follow either up or down, the economy is in the process of dividing in two. One arm of the K goes up. The other goes down.

In spite of the COVID-19 recession, expensive housing in Toronto moved quickly in September. This one sold in a matter of days. (Don Pittis/CBC)

Many economy watchers have already marked its arrival. Certainly in Canadian real estate, the division between those bidding up detached houses to record levels are a sign of the K phenomenon. This week, for example, data from the Toronto Regional Real Estate Board showed the most desirable low-rise homes rose at a staggering 42 per cent year on year.

“Improving economic conditions and extremely low borrowing costs sustained record-level sales in September,” TRREB president Lisa Patel said in a monthly data release.

While the price of detached and low-rise homes soared 42 percent, highrise condos were weaker and rental prices have been declining. Sign of the K? (Don Pittis/CBC)

But while banks are pleased to lend at those low rates to people who have steady jobs, not everyone has access to that cheap money. Nor does everyone feel like going out on a spending binge.

TRREB data shows highrise condos only increased in value by one-sixth as much, and other data has shown that rental prices are weakening, further signs of a two-speed economy.

Front Burner22:47Year K: The Canadian economic crisis enters phase two

On Wednesday, Justin Trudeau will lay out his plan to lead Canada through this next stretch of the pandemic. It comes at a pivotal moment, as CERB and other programs helping people stay afloat are winding down, more than a million Canadians are still out of work because of COVID-19, and infections are on the rise. Today, the CBC’s economics reporter Peter Armstrong joins us to talk about the scope of the economic crisis right now, and what might be done to fix it. This is part of our ongoing series Year K, about how COVID-19 could make Canada a more unequal place. 22:47

In its most extreme interpretations, as discussed earlier this week in the Wall Street Journal, the division between the well-employed and the unemployed is stark and in danger of growing, especially in the U.S., where Congress has not yet agreed on a new income support plan.

Striking disconnect

“The divergence helps explain the striking disconnect of a stock market and household wealth near record highs, while lines stretch at food banks and applications for jobless benefits continue to grow,” said the Journal.

The K pattern may be visible in Friday’s unemployment data. Effectively the upward pointing bar of the K includes that group of people with stable incomes who are able to keep doing their jobs using their computers from home. Those people, usually in management, administrative or technical kinds of jobs, have traditionally been better paid. Teachers and medical professionals are in that group.

While retired people may have been more isolated, partly in fear of being the most susceptible to the virus, their incomes are mostly on the top bar of the K, as low interest rates push investments up and pension funds fatten.

A third group whose incomes are rising and stable might be seen as those providing services to the other two groups. Delivery people and Amazon warehouse workers at the low end of the wage spectrum and well-paid contractors doing fix-it work on houses of the well-employed would tend to be on the rising bar of the K.

The great divide between the two arms of the K reminds me of my favourite Wall Street Journal headline from the last recession, which applies again today: “Wealthier Households Carry the Spending Load.” As I commented at the time, as well as having to get all the money, the long-suffering rich had to do all the shopping as well!

Aircraft company Boeing, which already laid off 16,000 workers earlier this year, is expected to exact another round of layoffs. And those workers don’t come cheap. (Eric Johnson/Reuters)

The downward-pointing bar of the K includes many lower-paid people, including hotel cleaning staff and other hospitality and retail workers, which will disproportionately affect recent immigrant groups and women. But it also has affected many traditionally well-paid employees in the travel-related sector including another round of layoffs at Boeing, possibly today. And those workers don’t come cheap.

As energy demand falls, jobs in the well-paying oil and gas sector have tightened further. Business owners and people in the lucrative commercial property sector have suffered income loss and some have effectively lost jobs.

Shrinking profits

In new research released today, the Business Development Bank shows that 76 per cent of small- and medium-sized businesses have watched revenues and profits shrink and are looking for ways to pivot their businesses to succeed in the post COVID-19 era.

There are two things to watch if upcoming statistics, including jobs numbers, show that the letter K is the best alphabetic descriptor of where the economy goes next.

The first is that a long-lasting shortage of work even after the lockdown ends is likely to have a macroeconomic effect on the entire economy, cutting growth and reducing the circulation of money.

But the other lesson learned in the 1930s is that even a shutdown that throws 25 per cent of employees out of work does not cause the entire economy to grind to a halt. Those whose families lived through the Great Depression will know that for households in which one person was among the 75 per cent who still had a job, that family continued to buy and spend and live in a surprisingly normal manner. Jobless families suffered much more.

That’s why Parliament’s unanimous vote in favour of a long-term benefit plan may provide Canada with an economic advantage, helping the most unlucky to eke out a living until the jobs come back or new ones are created.

Follow Don on Twitter: @don_pittis

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Calgary's post-pandemic economy poised for 6.9% expansion in 2021, report says –



Calgary’s economy is going to start roaring back to life next year, but not before the city posts a dismal 10.1 per cent GDP contraction for 2020 as the pandemic and the energy sector slump continue to take their toll, according to a report released Tuesday. 

The Conference Board of Canada’s forecast for Calgary’s economy says that after being put through the wringer in 2020, the city’s fortunes will start to turn around in the new year.

“As the pandemic eases and oil prices slowly begin to strengthen, our call is for the Calgary economy to expand by 6.9 per cent in 2021,” the report said.

Calgary’s labour market already shed 44,000 jobs from the second quarter of 2019 to the first quarter of 2020. 

Another 90,900 jobs were lost in the second quarter of this year, and the board predicts employment will fall by a record 8.0 per cent overall in 2020.

The report predicts Calgary’s unemployment rate will remain high for many more months, averaging 11.3 per cent this year and 10.4 per cent next year.

“Calgary won’t recover its lost jobs until the end of 2022, partly because the oil and gas sector will recover only slowly,” the report said.

Some sectors of the economy are expected to recover faster than others.

The board says Calgary’s badly bruised retail sector — which saw sales drop by 5.1 per cent in 2020 — will bounce back and grow 9.7 per cent in 2021.

But the arts and entertainment industry, which declined 26.2 per cent, and the accommodation and food industry, which fell by 36.9 per cent, might not fully rebound until 2022, the report says.

Speaking Tuesday at the annual outlook conference hosted by Calgary Economic Development, ATB Financial chief economist Todd Hirsch said it’s expected that unemployment in Alberta will drop only slightly to 11 per cent next year and remain in the double digits for some time yet.

The Conference Board of Canada says Calgary’s employment rate and GDP will recover slowly but surely over the next two years. (Conference Board of Canada)

“It’s going to take a lot of growth, maybe a few years of growth, to absorb all of that excess labour and make sure everyone finds jobs. So it’s going to take us a while and we don’t think we’re going to be back into single digits probably until 2022 or even later,” he said.

“To get back to 2014 levels, we estimate that’s not going to happen until probably 2024. So it’s sort of a lost decade of growth for this province.”

Calgary Economic Development is banking on the technology sector to help turn around the city’s fortunes.

CEO Mary Moran says companies are already realizing what Calgary has to offer, pointing to how several tech firms have moved into empty office space downtown.

“You have seen the real estate industry adjust to … shorter-term leases, different floor plates, different amenities that they’re offering. And those ones that have made that adjustment are the ones where the tech companies are migrating to.”

Moran says her organization’s goal is to double the number of tech companies in Calgary by the end of this decade.

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Result of 2020 U.S. election has implications for Canadian economy –




Coverage of the U.S. election has split Canadians into three main camps: those who are relieved they live north of the border, those who don’t care, and those who are nervous either outcome with have consequences for us, the neighbour to the north.

A recent report from RSM Canada indicates the election outcome, combined with Canada’s reliance on the U.S. economy, might alter Canada’s recovery and longer-term outlook.

Based on the findings, Canada-China trade has been trending down since the beginning of the U.S.-China Trade War in 2018, while total trade between Canada and the United States increased during this period.

This indicates, based on the current administration’s inability to cap the domestic spread of the virus, a Donald Trump re-election could present economic risks to Canada, due to our dependence on them.

However, Trump’s protectionist tendencies suggest Canada may see further headwinds with its largest trading partner, should he be re-elected.

Additionally, Joe Biden’s proposed ‘Made in America’ tax incentive, which offers tax credits for companies in the U.S. that expand employment and salaries domestically, could potentially discourage future Canadian market expansion.

Further, Biden’s willingness to adopt Trump’s tough stance on China if elected suggests Canada will likely continue to be negatively affected by U.S.-China trade relations.

Moreover, Canadian oil pricing will be hit hard if Biden follows through on his campaign promise to cancel the Keystone XL pipeline–a critical venture for Western Canada oil producers that would provide direct access to the Gulf Coast refineries and world markets.

“Despite a rocky relationship between Canada and the current U.S. administration in recent years, it’s clear that a victory for either Trump or Biden would pose risks to Canada’s economy,” Alex Kotsopoulos, vice president of projects and economics with RSM Canada, said in a news release.

“The issue is that Canada has become increasingly dependent on its neighbour south of the border, and when you combine this with the strong ‘America First’ policies of both presidential candidates, Canada will feel the brunt of those decisions. Therefore, it’ll be important for the Canadian government to proactively engage with the new administration to shore up trade and supply chains, which will be vital in Canada’s own recovery,” he continued.

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Ottawa's economy to shrink 5.7% in 2020 before rebounding next year: Conference Board – Ottawa Business Journal



Even the insulating effect of the federal government won’t be enough to prevent Ottawa-Gatineau’s economic output from contracting for the first time in nearly a quarter-century in 2020 as COVID-19 continues to wreak havoc with key sectors, a leading think-tank says.

The National Capital Region’s GDP is expected to shrink by nearly six per cent this year, the Conference Board of Canada predicts in its latest economic outlook released this week. To put that number in context, the city’s economy has grown by an average of 2.7 per cent annually over the last five years.

“Ottawa-Gatineau’s position as the nation’s capital and home to the federal government often insulates the city from big swings in economic growth,” said the organization, which forecast back in May that the region’s economy would contract by 2.4 per cent in 2020. “However, the city will not escape the impacts of the COVID-19 pandemic.”

It would be the first time Ottawa-Gatineau’s GDP has contracted since 1996, but the think-tank says the capital region is still in better economic shape than most other Canadian centres. 

The Conference Board forecast says Canada’s overall GDP will shrink by 6.6 per cent in 2020 as households tighten their pursestrings and many sectors struggle to recover from a devastating spring and summer. The organization paints an even grimmer long-term picture for industries such as air transportation, accommodations and food and beverage services, declaring they “might never fully return to normal.”

The organization says public administration is the only sector of the local economy that’s expected to grow in 2020. Not surprisingly, the accommodation and food services industry – which has been largely shuttered for much of the pandemic as part of public health efforts to contain the virus – is expected to take the biggest hit, with the Conference Board’s forecast calling for the sector to decline by a whopping 35.6 per cent.

Other sectors facing big declines include retail, which is expected to shrink 6.4 per cent ​– only the third time in the last two decades its output has fallen year-over-year.

Still, the think-tank says it expects both the local and national economies to bounce back in a big way in 2021, with Ottawa-Gatineau’s GDP expected to grow by 5.2 per cent and the national GDP forecast to rise by 5.6 per cent. 

The Conference Board is predicting Ottawa-Gatineau to continue on a growth path in the years ahead, albeit at a slower rate, forecasting GDP increases of 3.6 per cent in 2022 followed by consecutive 1.3 per cent bumps in 2023 and 2024.

The organization made several other economic forecasts, including:

  • Ottawa-Gatineau’s unemployment rate – which peaked at 9.5 per cent in June – will finish at 7.4 per cent for the year, compared with a mark of 4.8 per cent in 2019. Employment in accommodation services will feel the biggest impact, plummeting 34 per cent from last year;
  • Housing starts – which reached a 35-year high of 11,200 units in 2019 – will fall to 10,700 units this year before dipping below 10,000 in 2021 and the next few years ahead;
  • The region’s population will grow 1.5 per cent in 2020, its smallest annual increase in the last five years;
  • Ottawa-Gatineau’s per capita household income will rise 3.8 per cent this year, while per capita disposable income is forecast to grow 5.8 per cent.

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