Posted: 07 May 2020

China exports surprise on upside, tomorrow’s job numbers will be terrible and we expect a slow economic recovery

Chinese international trade statistics for April provided some upbeat news to financial markets today.    

After dropping sharply in March, Chinese exports rose last month, at 3.5 percent above year-earlier levels. This year-over-year estimate implies an 8.2 percent seasonally unadjusted month-over-month increase. 

In contrast, Chinese imports in April fell 14.2 percent from the previous year, compared with the 0.9 percent decline in March. 

The surge in exports and drop in imports pushed China's trade surplus to US$45.34 billion last month, compared with a US$19.9 billion surplus in March.

While the increase observed in the export data is favourable, it likely partially reflects shipments that had been previously delayed due to lockdowns. There are other dimensions to this story. The latest Chinese Purchasing Manager Index showed the manufacturing sector returning into contraction.  Moreover, the drop in imports could signal weak domestic demand and less inflows of parts that go into future production.  So, I would interpret the latest trade numbers as signaling that the Chinese economy is growing but at a slow pace. 

US jobless claims last week rose by 3.2 million.  This is lower than prior weeks but is still stunningly high.  Tomorrow we will get the US payroll report and labour force survey.  Market expectations are for a loss of 21 million jobs in April with the unemployment rate jumping to over 16 percent. 

Similarly, tomorrow’s Canadian labour force survey is expected to show a loss of 4 million jobs in April with the unemployment rate soaring to 18 percent. 

These numbers are terrible, but the fundamental question is how quickly and how much employment will rebound as the lockdown is gradually relaxed?  Yesterday, we published updated economic projections (available here) and our expectation is that the labour market will take a very long time to recover.

First, the reopening will be slow and not linear.  Second, even if governments allow reopening, many firms may not be prepared or able to return to work when the virus is still in circulation.  For example, businesses in office towers will be challenged by limits on how many workers can be on an elevator at a time.  Another example is that there might not be adequate supply of personal health protection supplies to have staff fully return to work.  Third, we will lose many small and medium size businesses (SMBs), a segment that is often characterized as the job creation engine of the economy.  So, the recovery in the labour market will be tied to how many new business startups can be established in the wake of the crisis.  Taken together, the main message is that the recovery will take considerable time and be bumpy along the way.  

British Columbia announced its reopening framework, which called the B.C. Restart Plan

Economic Insights

A regularly updated snapshot by Deloitte Economics that provides commentary from Chief Economist, Craig Alexander on the latest developments shaping Canadian and international economies including, economic growth, business investment, trade, and market activity. Deloitte analysis gives you the knowledge to tackle the most challenging business issues of today.

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