It’s natural to want to see a light at the end of the tunnel, obviously in terms of the health crisis caused by coronavirus but also for the economy. And there will be one — eventually.
“The very best case scenario is we rapidly bounce back and we get close to something where we were before. Personally, I think that’s highly unlikely. The shock from the virus is going to trigger a broader economy-wide recession,” said Jesse Edgerton, an economist at JPMorgan. “That’s a really harsh reality.”
The question of when and how the economy gets better largely hinges on our ability to get the virus itself under control. Despite calls from some Republican lawmakers to get back to business before that happens and even some speculation about reopening the economy early from the president, it’s not a realistic scenario — people aren’t going to be falling over themselves to go out to restaurants and pack into movie theaters as a deadly virus spreads, or as they or their loved ones get sick.
At some point — and we don’t know exactly when — the economy will bounce back, at least partially. When it does,that new normal will be different. Many Americans may be worse off than they were before, some people may still be afraid to resume their lives as they once lived them, and many businesses may have permanently closed.
“There will likely be some permanent damage inflicted on the economy,” says Greg Daco, chief US economist at Oxford Economics. “What this shock is doing is exacerbating preexisting inequality issues across the country. The individuals who have been hit the hardest are the individuals who were in the most precarious position to start with.”
Economists say it could be anywhere from 2021 to 2031 before the economy returns to something like the pre-coronavirus “normal.” But it will never be entirely the same.
“We’ve never seen anything like this before, so we’re speculating along with everyone else,” Edgerton said.
The first prerequisite for economic recovery will be a public health solution: widespread testing, tracing of possible infections, antibody testing for immunity, adequate supplies for the health care system, and so on. The coronavirus outbreak will need to be firmly under control before the economy can resume anything approaching normalcy, and we just don’t know yet when the public health breakthrough will happen. Consumers need confidence participating in the economy won’t get them or their loved ones sick before they will revert to their typical economic activity.
“The longer these issues linger in the form of people not having confidence in returning to their daily activities,” Daco said, “the more severe these dislocations will be.”
But once that has been achieved, the problems and solutions we are dealing with will become more recognizably economic. Jason Furman, a former top economist for President Barack Obama who is now at Harvard, told Vox the economic fallout and recovery will likely have three stages:
Contraction: That’s what Americans are experiencing right now, with millions of people losing their jobs while business investment and consumer spending fall off precipitously
A partial bounceback: Once society starts to reopen, there will be a lot of hiring and spending and investment to ignite the recovery, but that is unlikely to bring the economy all the way back to where it was in January 2020
The long slog: After the initial but incomplete improvement, it may take a long time for unemployment and wages to return to levels similar to the pre-coronavirus economy
The timeline for the second and third steps is difficult to know. The recovery is likely to look robust at first; Furman suggested we could see some of the most impressive job gains (one million or more in a month) and GDP growth numbers ever. Parts of the economy should be able to snap back to something approximating their pre-crisis state.
And such a quick recovery could be self-reinforcing, at least up to a point.
“If the economy starts surging back then some businesses will suddenly face insufficient capacity. Those businesses will have to double-down on hiring, ordering supplies and investment in new equipment, capital, etc.,” Karl Smith, vice president of federal tax and economic policy at the Tax Foundation, says. “That then provides an extra boost of demand for the rest of the economy that produces a secondary wave of investment.”
While it’s impossible to rule out a rapid and complete return to normalcy — a V-shaped recovery, in the economists’ lingo — most experts we spoke to consider it unlikely. Too much structural damage has been done, jobs and businesses lost that will never come back. Supply chains have been broken and need to be rebuilt.
Americans are more likely to find themselves in something like the 2011 or 2012 environment after the Great Recession: The economy is no longer the biggest story in the world, but the unemployment rate will be high and wages will still be depressed. It’s helpful to remember how the economic recovery began last time around in June 2009, when the national unemployment rate was at 9.5 percent. A year later in 2010, it was stuck at 9.4 percent. In 2011, it was 8.2 percent. Unemployment didn’t fall below 5 percent until early 2016. And in this crisis, the unemployment rate is expected to have an even higher peak.
“The shock from the virus there is going to be enough to tip off at least a normal recession in the rest of the economy beyond these direct effects of the sectors that we have had to shut down. … We should expect the next nine months or a year to look like a recession, to continue to see high levels of unemployment and depressed levels of output,” Edgerton said. He predicted that “it will be at least a few years before we feel as good as we did in January.”
How long this lasts, and what the recovery looks like, depends on actions while the health crisis is still underway. The government has passed a $2.2 trillion stimulus package to try to prop up the economy in the meantime, and more federal spending will be needed. But transitioning from stimulus provisions to a normal economy can be tricky.
Smith pointed out the enhanced unemployment aid will be a boon to consumer demand in the short term while depressing labor supply, but as soon as it’s cut off, demand could drop because people have less money to spend and not everyone will get a new job immediately. (One way to avoid that: a phase-out of some kind.)
“It really depends, to my mind, on just how much damage is done during the time that the economy is shut down in the way it is now,” said former Federal Reserve Chair Janet Yellen in a recent interview with CNBC. The more workers are laid off, the more households that run down their savings, the more people who fall behind on their bills, the longer the slog of recovery.
The recovery can take many shapes if you think of it as a line graph: a V, a U or, worst of all, an L (sharp sudden drop and long gradual climb). Yellen said, “The more damage of that sort is done, the more likely we are to see a U, and there are worse letters, too, like L, and I hope we don’t see something like that.”
Just as we saw after prior economic crises, not everybody will experience the same recovery. For the wealthy and higher-income people, those who didn’t lose their jobs and whose financial well-being was more marginally affected, they may bounce back to normal quickly once they go back to work full-time and the stock market starts to improve.
“There will be some individuals who have V-shaped recovery,” Claudia Sahm, who worked a the Federal Reserve through the 2008 recession and is now director of macroeconomic policy at the Washington Center for Equitable Growth, says. “The people who came into this with a good financial position… they’re gonna be fine.”
But the job market for low-wage workers is probably going to look a lot worse, even as the broader economy starts to pull out of the coronavirus recession.
At the beginning of this year, the unemployment rate was down around 3 percent and wages were ticking up. That’s basic supply-and-demand: there weren’t a lot of workers out there looking for a job, so firms had to raise wages to be competitive. But that new reality, which took years to reach after the Great Recession, has been completely dismantled.
And when the public health crisis is over and life starts to return to normal, unemployment could be 15 or even 20 percent. There are going to be a lot of workers looking to fill those open slots, especially as the emergency unemployment benefits in the stimulus bill start to expire.
“Wages are going to come out of the recovery worse than they were,” Sahm says. “Everything is going to be worse for workers who went into the recession in the most fragile position and there are a lot of them.”
The horizon for workers may shake out differently depending on geography. University of California Berkeley economist Danny Yagan found that after the Great Recession, workers who lived in places that were hard hit by the recession were less likely to be employed at all in 2015, even if the local unemployment rate had recovered. It appears that years later, some people in the most affected areas had just given up looking for work altogether.
The economic crisis may exacerbate racial income inequality as well. In 2015, a report from the ACLU estimated that by 2031, wealth for white households would be 31 percent less than it would have been had the Great Recession never happened. For black households, it would be down nearly 40 percent. And the coronavirus crisis is already hitting black communities especially hard. Early numbers suggest black people are at higher risk for contracting and dying from coronavirus, and a smaller proportion of black and Hispanic workers are able to work from home compared to Asian Americans and whites.
“We know that blacks, Latinx, and native people, in terms of race and ethnicity, they have lower levels of reserves, and we also know that their employment is more precarious than that of white people,” Darrick Hamilton, the executive director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University, recently told Vox.
Maybe the hardest truth to accept, however, is that some things will never go back to the way they were.
The travel and hospitality industries could be in for a long depression of their own, depending on how quickly people are to trust the safety of international travel or venturing far from their own homes. This is where the public health response comes back into play: the sooner people feel confident about testing and infection tracing, confident enough to book a flight and a hotel room in some far-flung destination, the sooner those industries will be back to normal.
“Where I do see the potential for change, and I don’t know if it’s permanent or long-lasting, is travel,” Daco says. “There may be an environment of caution going forward in terms of travel. You’ll likely see a normalization in local services first, before you see a normalization in travel-related activity. People are still going to be cautious when it comes to boarding a plane and going on a vacation. The same may be true for business travel.”
The same goes for bars and restaurants, at least in the short term — it might be some time before people are comfortable crowding into such establishments, and many may not survive the crisis at all. As much as you may be trying to order delivery to keep your local favorites afloat, you cannot order enough pad thais to pay their rent. But, presumably, at some point, people will start going out to eat again like they once did.
It may take some time for live events to enjoy the audiences they once did, too, though Furman said he expects that at some point, the live entertainment industry will look pretty much the same as it did before the crisis.
And broadly speaking, we may see greater market concentration in sectors where many small businesses were lost. Congress has tried to prop up small businesses through loans approved in the stimulus package, but there are already reports of problems with the actual administration of those benefits. The more small businesses that close because of either the initial economic shock or a problem accessing federal benefits, or both, the more the markets they leave behind will be concentrated in a handful of dominant players.
It’s certainly worth asking if Americans wantthe economy to go back exactly to the same way it was. The coronavirus crisis has exposed and exacerbated deep flaws in the US system, including the economy. Corporations that just got a massive tax cut may now not have many resources to weather the downturn. Why were large businesses able to spend much of that tax windfall on stock buybacks and executive compensation? Why haven’t workers been paid enough to build up savings to get by when they lose their jobs by not fault of their own? Where is the social safety net?
“In the United States, economic inequality has been on the steep incline for a long time, and there were many people already on the verge before this happened, systems already failing,” said Jamila Michener, an assistant professor of government at Cornell University. “It just highlights all the cracks and the flaws and faults that already existed.”
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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.
