3M issued a statement today, “The Administration also requested that 3M cease exporting respirators that we currently manufacture in the United States to the Canadian and Latin American markets. There are, however, significant humanitarian implications of ceasing respirator supplies to health care workers in Canada and Latin America, where we are a critical supplier of respirators.” Prime Minister Trudeau sent a warning to the Trump administration to keep the Canada-U.S. border open for the trade of essential goods. However, this raises the possibility of an important legacy from the current crisis. I wonder whether we will see the rise of industrial sovereignty in economic affairs. Countries may feel that there are essential products that must be produced at home to address potential emergencies and safeguard from shortages. This could also shape and impact global supply chains. Something to ponder as events unfold.
US non-farm payrolls dropped by 701k positions in March, with the unemployment rate spiking higher by almost 1 percentage point to 4.4 percent. This report highlighted one of the unique dimensions of this downturn – the decline in services. Typically, goods producing sectors experience the fastest and deepest decline in downturns. However, two thirds of March’s job losses were in hospitality and leisure – mainly food services. As expected, retail was a source of weakness. Goods were not immune, however, as seen in employment dropping in manufacturing. We continue to expect that the unemployment rate will rise to above 10 percent in the near term.
The latest Purchasing Manager’s Index (PMI) data signals a very sharp recession all over Europe. PMIs fell to levels far below the worst point in 2008/09 recession. Spain, France and Germany all recorded the lowest reading in their respective surveys since they started more than 20 years ago. For the Eurozone as a whole, the composite PMI index of services and manufacturing, compiled by IHS Markit, dropped from a reading of 51.6 in February to only 29.7 in March, the lowest reading since the survey began 22 years ago. Data from the UK painted the same picture; its index fell from 53.2 to 34.5.
It is important to stress that the Canadian economy is not only experiencing a downturn from the pandemic but it is also experiencing a severe oil shock. There are two benchmark prices for Canadian oil producers. Some sell at West Texas Intermediate (WTI) crude oil, while other sell at Western Canada Select prices. WTI started the year at close to US$60 a barrel. In the final days of March, WTI fell to near US$20 a barrel. Worst still, WCS dropped to around US$5. However, there was some relief at the end of this week, as oil prices rallied by close to US$8 in anticipation of a possible OPEC supply cut announcement next week. Regardless of the fluctuations, the Canadian energy sector is being pummeled by the low energy price environment. We still await a federal government response for the oil and gas sector that has been alluded to for some time.
