Limited functionality available
The Labour Force Survey for March broke records in a terrible way, showing the start of the economic fallout from the COVID-19 pandemic and the severe oil shock battering the economy. Canadian employment fell by more than one million in March – the prior record was 125k in January 2009. The unemployment rate surged 2.2 percentage points (from 5.6 percent to 7.8 percent), representing the largest monthly increase since the current series started in 1976.
The survey was done between March 15 and 21. As such, it only represents the start of the job toll. Stats Can indicated that the combination of job losses, absences from work and reduced hours suggest that 3.1 million Canadians were affected by COVID-19.
A large portion of the job losses were temporary layoffs (550k), reflecting the impact of shutdowns caused by COVID-19 containment efforts. Private sector employment fell by 830k, while public sector lost 145k and self-employment dipped by 36k.
Provincially, the weakness was coast-to-coast. As one would expect, the largest numerical job losses were in the most populated provinces: Ontario -403k, Quebec -264k, BC -132k, and Alberta -117k.
Statistics Canada did an excellent job of summarizing the details in The Daily, available on the Stats Can website. They provided alternative labour market perspectives. For example, 219k people were not in the labour force but had worked earlier in the month and still wanted a job. Normally discouraged workers (i.e. did not work nor looked for work – so don’t count as unemployed) are not part of the labour market picture, but they are an important dimension during the pandemic. After all, if employers are shutdown, why would you be applying for a job at these firms?
The industry employment declines highlight the hardest hit sectors: accommodation and food (-24 percent in just one month); information, culture and recreation (-13 percent), education (-9 percent) and retail/wholesale (-7 percent).
Beyond the impact on employment, the economic fallout is evident in the massive 15 percent decline in average hours worked, signaling a deep economic contraction during the month. We are currently anticipating a 5 percent annualized contraction in the Canadian in the first quarter of 2020, followed by a 23 percent annualized contraction in the second quarter.
The shocking labour market decline supports the aggressive easing of monetary and fiscal policy. Indeed, our current estimate is that the combined value of federal and provincial stimulus is worth roughly 13 percent of GDP.
This morning the Federal Reserve has announced a $2.3 trillion program aimed at supporting the economy. The Fed said it stands ready to provide "as much relief and stability as we can during this period of constrained economic activity” and to ensure that the recovery, when it begins, is “as vigorous as possible."
The program consists of several parts, with commercial loans ($600B) and bond-purchases ($500B) making up the largest share of new money. Remaining funds will be used to expand previously announced business support programs.
The lending program is intended to support small and medium-sized businesses by extending up to $600B in four-year loans to eligible firms through the Main Street Lending Program (MSLP). To be eligible, businesses will have to be in good financial standing prior to the crisis and have less than 10,000 employees or revenues below $2.5B.
The bond-buying will be conducted through a newly established Municipal Liquidity Facility. The facility will enable the Fed to buy up to $500B in short-term notes directly from U.S. states (and D.C.), counties with at least 2M residents, and cities with a population of 1M and above.
Fed Chairman Powell was vague on the magnitude of the contraction and the timing of the recovery, but he was confident that the economic rebound, when it comes, should be robust given the amount of monetary and fiscal support.