“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.
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.
