Posted: 28 May 2020

Not a She-cession, small business sentiment, US data becoming less negative

Statistics Canada released its payroll survey of establishments (SEPH). Payrolls dropped by 914,500 in March. This 5.4 percent decline lines up well with the 5.3 percent drop shown in the Labour Force Survey for the same month.

Being an establishment-based survey, SEPH data provides insight into the sector-by-sector timing of the impact of the COVID-19 shutdown on the labour market. By mid-March, the bulk of the job losses were in positions held by women, reflecting the relative ease of shutting down non-essential services businesses. This gender dimension led to references of a She-cession. In late March and April, more goods-producing industries shut down, with greater declines in jobs for men. As a result, both the Labour Force Survey and the SEPH survey show a similar percentage decline for men and women in the labour market.

However, it should be stressed that this still makes the current recession different from in the past. In prior business cycles, good-producing industries endure the most of the downturn, and these industries have a greater share of male workers. The 2008/09 recession was very much a He-cession. This time around, it is more gender neutral, and that means women are being more affected than in the past.

Rather than gender, the major characteristic of this contraction is that it is a low-paid-worker recession—the most vulnerable of the female and male populations.

Small business confidence, as measured by the CFIB Small Business Barometer, improved in May but remains fragile. The index stood at 52.5 in late May, slightly below the early May reading but 22 points higher than the level in late March when the lockdown happened. A reading of 65 is consistent with the economy growing at a moderate pace – we do not have a statistical threshold for a level signaling contraction.

In addition to the CFIB barometer, I have been following the CFIB COVID-19 surveys with interest. In particular, there is a question phrased, “I am confident my business will survive COVID-19”. The latest survey from May 14 showed that roughly 4 percent of respondents strongly disagree with the statement, while 9 percent somewhat disagreed.

The industries most at risk are arts & recreation, hospitality, personal services, retail and transportation.

In terms of the reopening, it is interesting to note the much divided business sentiment. Roughly, 39 percent of businesses feel that they are being left behind by the current reopening plans of their province, while an equal 39 percent of businesses disagree with this assessment. The sectors that feel most left behind are largely the same that have been hit the hardest, with the addition of natural resources firms.

The US economy contracted by an annualized 5 percent in the first quarter, according to the second estimate. This is slightly lower than the advance figures published a month ago and about half the decline we currently forecast in Canada – to be released tomorrow morning by Stats Can. Services spending led the decline, falling by 9.7 percent (annualized), as purchases of transportation, recreation, and food services slumped by about one-third each. Reduction in spending has hit businesses hard, leading corporate profits down by 14.2 percent in the first quarter.

While the second quarter numbers will be unequivocally worse, growth in the three months through June looks to have held up better than anticipated. Durable goods orders, a leading indicator of economic activity, fell a whopping 17.2 percent in April besting expectations for a 19 percent drop. The figures are even less discouraging when we exclude new orders for aircraft—that have plummeted as global carriers hunker down to preserve capital in their most difficult hour. After excluding the highly volatile category, nondefense orders fell by 5.8 percent. This is a horrible number in normal times, but inspiring in the current context with consensus coalescing around a 10 percent drop. The new numbers lift our newscast tracking for the second quarter by nearly 2 percentage points putting the contraction at -39.8 annualized.

The turnaround tone was unequivocally apparent in the weekly unemployment benefits claims. Initial claims continued their downward trek, falling over 300 thousand to 2.1 million. While still very concerning, the number is a fraction of the nearly 7 million that applied for benefits in early-April. For the first time since the economic lockdown, continuing claims for UI have improved, with nearly five million Americans no longer needing the benefits.

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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Craig Alexander

Craig Alexander

Chief Economist and Executive Advisor

Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.