Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in February 2021. Canadian home sales increased a whopping 6.6% month-on-month (m-o-m), building on the largest winter housing boom in history. On a year-over-year (y-o-y) basis, existing home sales surged an amazing 39.2%. As the chart below shows, February’s activity blew out all previous records for the month.The seasonally adjusted activity was running at an annualized pace of 783,636 units in February. CREA’s revised forecast for 2021 is in the neighbourhood of 700,000 home sales. Strong demand notwithstanding, sales may be hard-pressed to maintain current activity levels in the traditionally busier spring months absent a surge of much-needed new supply. However, that could materialize as current COVID restrictions are increasingly eased and the weather starts to improve.

The month-over-month increase in national sales activity from January to February was led by the Greater Toronto Area (GTA) and several other Ontario markets, along with Calgary and some markets in B.C. These offset a considerable decline in Montreal’s sales, where new listings have started 2021 at lower levels compared to those recorded in the second half of last year.

In line with heightened activity since last summer, it was a new record for February by a considerable margin (over 13,000 transactions). For the eighth straight month, sales activity was up in the vast majority of Canadian housing markets compared to the same month the previous year. Among the eight markets that posted year-over-year sales declines in February, minimal supply at the moment is the most likely explanation.

“We are right at the start of the first undisturbed (by policy or lockdown) spring housing market in years, and we also have the most extreme demand-supply imbalance ever by a large margin. So, the question is, what is going on? I think part of it is the demand that built up due to regulatory changes in the years leading up to COVID that is playing out now. Part of it is the demand that is being pulled forward from the future either in search of a home base to ride out the pandemic or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist. “But maybe the biggest factor here is the emergence of existing owners with major equity, prompted by the great shake-up that is COVID-19 to pull up stakes and move. First-time buyers, which we have a lot of, are now having to compete with that as well.”

New Listings
The number of newly listed homes rebounded by 15.7% in February, recovering all the ground lost to the drop recorded in January. With sales-to-new listings ratios historically elevated at the moment, indicating almost everything that becomes available is selling, it was not surprising that many of the markets where new supply bounced back in February were the same markets where sales increased that month.

With the rebound in new supply outpacing the gain in sales in February, the national sales-to-new listings ratio came off the boil slightly to reach 84% compared to the record 91.2% posted in January. That said, the February reading came in as the second-highest on record. The long-term average for the national sales-to-new listings ratio is 54.4%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 15% of all local markets were in balanced market territory in February, measured as being within one standard deviation of their long-term average. The other 85% of markets were above long-term norms, in many cases well above. The first two months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

There were only 1.8 months of inventory on a national basis at the end of February 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months. At the local market level, some 40 Ontario markets were under one month of inventory at the end of February.

Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) jumped by 3.3% m-o-m in February 2021 – a record-setting increase. Of the 40 markets now tracked by the index, all but one were up on a m-o-m basis.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 17.3% on a y-o-y basis in February – the biggest gain since April 2017 and close to the highest on record.

The largest y-o-y gains – above 35% range – were recorded in the Lakelands region of Ontario cottage country, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 30-35% were seen in Barrie, Niagara, Bancroft and Area, Grey-Bruce Owen Sound, Kawartha Lakes, London & St. Thomas, North Bay, Northumberland Hills, Quinte & District, Simcoe & District and Southern Georgian Bay.

This was followed by y-o-y price gains in the range of 25-30% in Hamilton, Guelph, Cambridge, Brantford, Huron Perth, Kitchener-Waterloo, Peterborough and the Kawarthas and Greater Moncton.

Prices were up in the range from 20-25% compared to last February in Oakville-Milton and Ottawa, 18.8% in Montreal, 16.1% in Chilliwack, in the 10-15% range on Vancouver Island, the Fraser Valley and Okanagan Valley, Winnipeg, the GTA, Mississauga and Quebec, the 5-10% range in Greater Vancouver, Victoria, Regina and Saskatoon, in the 3.5% range in Calgary and Edmonton, and 2.6% in St. John’s.

Detailed home price data by region is reported in the table below.

Bottom Line

We all know why the housing boom is happening:

• Employment in higher-paying industries has actually risen despite the pandemic, supporting incomes among potential homebuyers.
• Mortgage rates plumbed record lows and, while they’re backing up now, they’re still below pre-COVID levels, while many buyers are likely still on pre-approvals with rates locked in.
• There’s been a dramatic shift in preferences toward more space, further outside major urban centres (commuting requirements are down and probably assumed to remain down).
• Limited travel has created historic demand for second (recreational) properties, and households have equity in existing properties to tap.
• Younger households are likely pulling forward moves that would have otherwise happened in the years ahead.
• There has to be some FOMO and speculative activity in the market at this point. In January, 6% of all houses listed for sale in Toronto’s suburbs had been bought in the previous 12 months, up from 4% a year earlier, according to brokerage Realosophy.

On the flip side, there is precious little supply to meet that demand, at least in segments that the market wants.

In a separate release, Canadian housing starts pulled back to 245,900 annualized units in February, a still-high level following a near-record print in the prior month. This is not a winter wonder. Starts on a twelve-month average basis are running at 227k annualized, the strongest such pace since 2008, and over the past six months, starts are averaging 242k, the highest since at least 1990. Both single- and multi-unit starts declined in the month, as did all provinces but British Columbia.

Please Note: The source of this article is from SherryCooper.com/category/articles/

This morning, Statistics Canada released the February 2021 Labour Force Survey showing much stronger-than-expected job growth. The early days of the latest easing in COVID restrictions reinvigorated the labour market. Economists were pleasantly surprised by the rapid rebound. To be sure, there remain risks to the outlook, a rise in virus cases because of the prevalence of the new variants, but the resilience of the Canadian economy is notable.

Employment rose by 259,200 (1.4%) in February, after falling by 266,000 in the prior two months, nearly reversing the effects of the second pandemic wave. The jobless rate fell a whopping 1.2 percentage points to 8.2%, the lowest rate since the beginning of the pandemic in March 2020.

Employment gains in February were concentrated in Quebec and Ontario. Most of the gains in these provinces reflected a rebound in industries—particularly retail trade and accommodation and food services–that had been hardest hit by the lockdowns. Broadly, February’s employment increases were concentrated in lower-waged work. These high-contact service sectors remain among the hardest hit during the crisis (see chart below).

February marked one year of unprecedented pandemic-related changes in the Canadian labour market. Compared with 12 months earlier, there were 599,000 (-3.1%) fewer people employed in February, and 406,000 (+50.0%) more people working less than half of their usual hours. The number of workers affected by the COVID-19 economic shutdown peaked at 5.5 million in April 2020, including a drop in employment of 3.0 million and an increase in COVID-related absences from work of 2.5 million. Since the pandemic began one year ago, there remain over 1 million Canadians who have suffered a loss of employment income.

Pandemic-related changes to the labour market have disproportionately affected young women, particularly teenagers. Compared with February 2020, employment losses among women aged 15 to 24 (-181,000; -14.1%) accounted for nearly one-third (30.2%) of the decline in total employment.

Reflecting a rebound in employment following two months of declines, the number of people on temporary layoff fell by 103,000 (-28.6%) in February. The number of long-term unemployed—those who had been looking for work or been on temporary layoff for 27 weeks or more—fell by 49,000 (-9.7%) from a record high of 512,000 in January.

The number of people who wanted a job but were not actively looking for one and therefore did not meet the definition of unemployed decreased by 33,000 (-5.7%) in February. Had people in this group been included in the unemployment count, the adjusted unemployment rate in February would have been 10.7% (down 1.3 percentage points from January).

COVID-19 has widened income inequality in Canada, as well as in the rest of the world. By far, the lowest income workers have been hardest hit by the pandemic. We have seen net job gains over the past year for higher-income workers. The following chart sheds light on why the housing market is so strong.

The jobless rate plunged everywhere except Atlantic Canada.

Bottom Line 

While Friday’s jobs report surprised on the upside, there are still concerns around an uneven recovery with most of the job losses since last year concentrated in three industries — accommodation and food services, culture and recreation and ‘other services, including personal care. The March employment report may take on even greater importance for the Bank of Canada since it will be the last set of jobs data before the central bank’s April policy decision. Accelerating vaccinations after a slow start would keep the hiring momentum going.

Another strong jobs report combined with recent data showing surprisingly strong growth in Q4 and Q1 economic activity could set the BoC on the road to tapering its bond-buying.

Please Note: The source of this article is from SherryCooper.com/category/articles/

Much has changed since the Bank of Canada’s last decision on January 20. While the second pandemic wave was raging, new lockdowns were implemented in late 2020, and there were fears that the economy, in consequence, was likely to grow at a 4.8% annual rate in Q4 and contract in Q1. Instead, the lockdowns were less disruptive than feared, as Q4 growth came in at a surprisingly strong 9.6% annual rate–double the pace expected by the Bank.

Rather than a contraction in  Q1 this year, Statistics Canada’s flash estimate for January growth was 0.5% (not annualized). Strength in January came from housing, resources and government spending, and the mild weather likely helped. In today’s decision statement, the central bank acknowledged that “the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures.”  The BoC now expects the economy to grow in the first quarter. “Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.”

A massive $1.9 trillion stimulus plan in the US is also about to turbocharge Canada’s largest trading partner’s economy, which will be a huge boon to the global economy and explains why commodity prices and bond yields have risen substantially in recent months. The Canadian dollar has been relatively stable against the US dollar but has appreciated against most other currencies.

Economists now expect Canada to expand at a 5.5% pace this year versus a 4% projection by the Bank of Canada in January. Going into today’s meeting, no one expected the Bank to raise the overnight policy rate, but markets were pricing in more than a 50% chance of an increase by this time next year, up from about 25% odds in January.

On the other hand, the BoC continued to emphasize the risks to the outlook and the huge degree of slack in the economy. “The labour market is a long way from recovery, with employment still well below pre-COVID levels. Low-wage workers, young people and women have borne the brunt of the job losses. The spread of more transmissible variants of the virus poses the largest downside risk to activity, as localized outbreaks and restrictions could restrain growth and add choppiness to the recovery.”

The Bank also attributed the recent rise in inflation was due to temporary factors. One year ago, many prices fell with the onslaught of the pandemic, so that year-over-year comparisons will rise for a while because of these base-year effects combined with higher gasoline prices pushed up by the recent run-up in oil prices. The Governing Council expects CPI inflation to moderate as these effects dissipate and excess capacity continues to exert downward pressure.

According to the policy statement, “While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until 2023.” The Bank will continue its QE program to reinforce this commitment and keep interest rates low across the yield curve until the recovery is well underway. As the Governing Council continues to gain confidence in the recovery’s strength, the pace of net purchases of Government of Canada bonds will be adjusted as required. The central bank will “continue to provide the appropriate monetary policy stimulus to support the recovery and achieve the inflation objective.”

Bottom Line

The Bank gave no indication when it might start to taper its bond-buying. The next decision date is on April 21, when a full economic forecast will be released in the April Monetary Policy Report. Governor Macklem is more dovish than many had expected and will err on the side of caution. When the central bank starts tapering its asset purchases, it will be the equivalent of easing off the accelerator rather than applying the brakes. The Bank of Canada has been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low. That pace may no longer be warranted with an outlook that appears to show the economy absorbing all excess slack by next year, ahead of the Bank of Canada’s 2023 timeline for closing the so-called output gap.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

The Bank of Canada, this morning, released its January Monetary Policy Report (MPR), showing they expect to keep overnight interest rates at its “effective lower bound” of 0.25% until 2023 (see chart below). To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its Quantitative Easing (QE) program–buying $4 billion of Government of Canada bonds every week until the recovery is well underway. The central bank indicated it could pare purchases once the recovery regains its footing.

According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects once the vaccine is sufficiently distributed and injected. There is no indication that they are planning additional measures to ease monetary policy.

This is particularly noteworthy for two reasons: 1) some economists had been speculating that the Bank would lower the overnight rate by 10-to-15 basis points to help mitigate the impact of continued and broadening lockdowns; and, 2) others thought the early development of the vaccine would trigger sufficient growth to warrant a rate hike in 2022. In the Bank’s current view, neither is likely to be the case. Why mess with a minute cut in already record-low interest rates when mortgage lending is still strong? The slow rollout of the vaccine and the mounting second wave of cases assure weak economic activity in Canada at least until the second half of this year.

As well, inflation remains surprisingly muted. In a separate release today, Stats Canada revealed that price pressures in Canada unexpectedly slowed in December as the country endured a new wave of lockdowns. After climbing to the highest since the pandemic in November, the latest reading shows price pressures are still well below the Bank of Canada’s 2% target. That’s consistent with the view from policymakers that inflation will remain subdued for some time.

The pandemic’s second wave has hit Canada very hard, and the vaccine rollout has been disappointing (see chart below). Today’s MPR predicts that the economy will contract in the first quarter of this year. Economic weakness could be exacerbated by the Canadian dollar’s strength, which moved to above 79 cents US following today’s BoC announcement. Ten-year yields edged up modestly as well.

Bottom Line

For the year as a whole, economic growth is expected to be around 4% in 2021, compared to a contraction of -5.5% last year. As the inoculated population grows, the Bank forecasts an acceleration in growth to just under 5% in 2022 and a more-normal 2.5% in 2023. According to the January MPR, “The medium-term outlook is stronger than in the October Report because of vaccines’ positive effects, greater fiscal stimulus, stronger foreign demand and higher commodity prices. Meanwhile, potential output has also been revised up, reflecting an improved projection for business investment and less scarring effects on businesses and workers. There is considerable uncertainty around the medium-term outlook for GDP and the path for potential output. Thus, while the output gap is expected to close in 2023, the timing is particularly uncertain.”

Concerning housing activity, the report said, “Demand for housing has continued to show resilience, despite increasing case numbers and tightening restrictions. Housing activity should remain elevated into the start of 2021, supported by low borrowing rates and resilient disposable incomes. Changes in homebuyers’ preferences have also played a role. For example, price growth has been strongest for single-family homes and in areas outside city centers,” shown in the chart below.

Canadian Jobs Market Tanked in December

Canadian employment fell 62,600 last month, a bit weaker than expected, following seven months of recovery (see chart below). The rapid rise in COVID cases and the ensuing lockdown measures in many key regions caused the net loss in jobs in the mid-December survey.  Especially hard hit were workers at restaurants and hotels who suffered a hefty 56,700 employment loss.

The jobless rate rose a tick to 8.6%–well below the peak of 13.7% in April–but still three percentage points above its pre-pandemic level.

However, there were some bright spots as several sectors churned out small gains (see second chart below).  Among them were finance, insurance and real estate, as well as scientific and tech services. Manufacturing rose 15,400, and public administration reported solid gains.

On a positive note, full-time jobs actually rose 36,500, and average wages pushed back up and are now 5.6% higher than one year ago. This outsized gain, in part, reflects the loss in so many low-wage jobs.

Part-time jobs were down sharply in December, led by losses among workers aged 24 and under and those aged 55 and older. Also, the number of self-employed workers fell by 62,000, its lowest point since the pandemic began.

The December loss of jobs left employment down 571,600 (or -3.0%) from year-ago levels, the deepest annual decline since 1982–but far better than the April reading of -15% y/y. The 2020 job loss in Canada of -3.0% is also a relatively mild downturn compared to today’s US job market release for December, which reported a -6.2% y/y drop in employment. In Canada, the 332,300 y/y loss in accommodation and food services employment alone accounted for 58% of our annual job loss.

Employment was down in nine out of ten provinces last month. The lucky exception was British Columbia. None of the provinces stood out on the low side. The table below shows the unemployment rate by province. Jobless rates rise and fall with labour force participation rates. You are not considered unemployed if you are not seeking work. The number of people counted as either employed or unemployed dropped by 42,000 (-0.2%) in December, the first significant decline since April. Core-aged women and young males were largely responsible for the fall.

Bottom Line 

It certainly doesn’t appear that the lockdowns will be lifted anytime soon. We keep hitting new records in the number of Covid cases, and the more contagious Covid variant is upon us. What’s more, the rollout of the vaccine has been disturbingly slow. So until winter is behind us, there is unlikely to be a meaningful opening of the economy. All things considered, Canada’s economy has been relatively resilient. That’s not surprising given the government income support–the most generous in the G7 countries. Moreover, financial conditions are extremely accommodative.

Although no one is coming through the pandemic unscathed, most of the employment losses have been lower-paying jobs. Many higher-income earners continue to work from home. And even though the pandemic is worsening, many of Canada’s housing markets recorded their strongest December ever. Rock-bottom interest rates, high household savings and changing housing needs turned 2020 into a spectacular year for housing activity.

According to local real estate boards, December resales were surprisingly strong for what is typically a quiet month. Existing home sales surged between 32% y/y in Montreal, Ottawa and Edmonton and 65% y/y in Toronto based on early results. More distant suburbs attracted many families looking for more space with less concern about long commutes when jobs can be conducted at home. Property values continued to appreciate at accelerating rates in most markets. Downtown condo prices still bucked the trend due to ample inventories in Canada’s largest cities—the downturn in the rental market has prompted many condo investors to sell. That said, softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December.

Housing is likely to continue to cushion the blow of the pandemic on the overall economy. And while not everyone is sharing in this windfall, it will ultimately help pave the way to better employment gains in the spring.

However, no question that the bright light at the end of the very dark pandemic tunnel is a widely dispersed vaccine. PM Trudeau reasserted this week that the vaccine will be available to all who want it by September 2021. At the pace, it is now getting into people’s arms, that will not happen. Just over 0.6% of Canada’s population was vaccinated as of Thursday, January 7. By comparison, the US had vaccinated 1.8% of its population by that date, and Israel had inoculated nearly 20%, according to Our World in Data, a nonprofit research project at the University of Oxford. The U.K. had vaccinated about 1.9% of its population by Jan. 3, the latest date for which vaccination numbers were available (see the chart below).

Canadian Housing Remained Strong in November Today’s release of November housing data by the Canadian Real Estate Association (CREA) shows national home sales continued to run at historically strong levels last month. Competition among buyers remains intense in the detached-home market and townhouses. Still, condo apartment sales-relative-to-new-listings have slowed as new listings surged, especially in the City of Toronto. Thanks to the lack of tourism and the reduced influx of immigrants, rents in Toronto have declined, changing the economics of condo investing. Many Airbnb properties in the short-term rental pool are now available for long-term rental, and the supply of newly built condos continues to rise. Lower rents have created a negative cash flow situation for some investors who are now anxious to sell.  As the supply of condo listings rises, demand has also slowed as many buyers look for less densified space. Combine that with the dearth of tourists and new immigrants, and it’s no wonder that the condo sector–especially smaller condos, is the weakest in the housing market. The Canadian federal government has committed to increased immigration targets for the next three years to make up for the shortfall in 2020. this was featured in a Government of Canada news release stating, “The pandemic has highlighted the contribution of immigrants to the well-being of our communities and across all sectors of the economy. Our health-care system relies on immigrants to keep Canadians safe and healthy. Other industries, such as information technology companies and our farmers and producers, also rely on the talent of newcomers to maintain supply chains, expand their businesses and, in turn, create more jobs for Canadians”. Canada aims to welcome 401,000 new immigrants in 2021, 411,000 in 2022 and 421,000 in 2023. The newly available vaccine will also encourage a return of short-term renters, but probably not until 2022 at the earliest. Home Sales Home sales edged down moderately for extremely high levels in both October and November. Notwithstanding this, monthly activity is still running well above historical levels (see chart below).Actual (not seasonally adjusted) sales activity posted a 32.1% y-o-y gain in November – the same as in October. It was a new record for that month by a margin of well over 11,000 transactions. For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019. Among the few markets that were down on a year-over-year basis, it is likely the handful from Ontario reflect a supply issue rather than a demand issue. This year, some 511,449 homes have traded hands over Canadian MLS® Systems, up 10.5% from the first 11 months of 2019. It was the second-highest January to November sales figure on record, trailing 2016 by only 0.3% at this point. Shaun Cathcart, CREA’s Senior Economist, said, “It will be a photo finish, but it’s looking like 2020 will be a record year for home sales in Canada despite historically low supply. We’re almost in 2021, and market conditions nationally are the tightest they have ever been, and sales activity continues to set records. Much like this virus, I don’t see it all turning into a pumpkin on New Year’s Eve, but at least vaccination is a light at the end of the tunnel. Immigration and population growth will ramp back up, mortgage rates are expected to remain very low, and a place to call home is more important than ever. On top of that, the COVID-related shake-up to so much of daily life will likely continue to result in more people choosing to pull up stakes and move around. If anything, our forecast for another annual sales record in 2021 may be on the low side.” New Listings The number of newly listed homes declined by 1.6% in November, led by fewer new listings in the Greater Toronto Area (GTA) and Ottawa. With sales and new supply down by the same percentages in November, the national sales-to-new listings ratio was unchanged at 74.8% – still among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.2%. Based on a comparison of sales-to-new listings ratio with long-term averages, only about 30% of all local markets were in balanced market territory in November, measured as being within one standard deviation of their long-term average. The other 70% of markets were above long-term norms, in many cases well above. There were just 2.4 months of inventory on a national basis at the end of November 2020 – the lowest reading on record for this measure. At the local market level, some 21 Ontario markets were under one month of inventory at the end of November. Home Prices The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.2% m-o-m in November 2020. Of the 40 markets now tracked by the index, all but one were up between October and November. The non-seasonally adjusted Aggregate Composite MLS® HPI was up 11.6% on a y-o-y basis in November – the biggest gain since July 2017 (see chart below). The table below shows the changing preferences of homebuyers for less densely populated areas outside the city core. With more people working from home, shorter commuting times don’t seem to be as important as before. The largest y-o-y gains – between 25- 30% – were recorded in Quinte & District, Tillsonburg District, Woodstock-Ingersoll, and many Ontario cottage country areas. Y-o-y price increases in the 20-25% range were seen in Barrie, Bancroft and Area, Brantford, Huron Perth, London & St. Thomas, North Bay, Simcoe & District, Southern Georgian Bay and Ottawa. Y-o-y price gains in the range of 15-20% were posted in Hamilton, Niagara, Guelph, Cambridge, Grey-Bruce Owen Sound, Kitchener-Waterloo, Northumberland Hills, Peterborough and the Kawarthas, Montreal and Greater Moncton. Prices were up in the 10-15% range in the GTA, Oakville-Milton and Mississauga. Meanwhile, y-o-y price gains were in the 5-10% range in Greater Vancouver, the Fraser Valley, Chilliwack, Victoria and elsewhere on Vancouver Island, the Okanagan Valley, Regina, Saskatoon, Winnipeg, Quebec City and St. John’s NL. Price gains also climbed to around 1-2% y-o-y in Calgary and Edmonton. The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in sales activity mix from one month to the next. The actual (not seasonally adjusted) national average home price was just over $603,000 in November 2020, up 13.8% from the same month last year. Bottom Line Housing strength is largely attributable to record-low mortgage rates and strong demand for more spacious accommodation by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, non-essential retail and tourism-related sectors. These are the folks that can least afford it and typically are not homeowners. The good news is that the housing market is contributing to the recovery in economic activity.   The level of sales is firm and holding up better than most pundits had expected. Despite the historic setback to the market earlier this year caused by the pandemic, CREA projects national sales will hit a record of 544,413 units in 2020, representing an 11.1% increase from 2019, and rise again next year by 7.2% to around 584,000 units. Dr. Sherry Cooper Chief Economist, Dominion Lending Centres drcooper@dominionlending.ca

Canada’s Jobs Recovery Slowed Again in November With Second Wave

The November Labour Force Survey, released this morning by Stats Canada, showed an employment increase of 62,000 compared to 83,600 in October–well below the 378,000 gain in September.  This was the weakest job growth in the past six months since the economic recovery began (see chart below). The rapid runup in COVID cases continues to dampen the recovery.

Virtually all of the job gains last month were in full-time work. Among those who worked part-time in November, more than one-fifth (22.6%; 808,000) wanted full-time work (30 hours or more per week) but could not find it. This was up 5.2 percentage points from 12 months earlier, with above-average increases among men aged 25 to 54 (up 13.2 percentage points to 46.4%).

Among those who worked at least half of their usual hours, 4.6 million worked from home in November. This was an increase of approximately 250,000 from October and included 2.5 million who do not usually work from home. Among the same group, the number of people working at locations other than home fell by approximately 100,000 to 12.2 million.

The unemployment rate fell to 8.6% in November, compared to 8.9% in October–well below the record-high 13.7% in May.

HOSPITALS AND SCHOOLS DRIVE GROWTH IN PUBLIC SECTOR EMPLOYMENT

The number of public sector employees grew by 32,000 (+0.8%) in November and exceeded its pre-COVID February level by 1.5%. On a year-over-year basis, the number of public sector workers was up 61,000 (+1.6%), driven mostly by increases in hospitals and elementary and secondary schools (not seasonally adjusted).

The number of private-sector employees was little changed in November but was down by 411,000 (-3.3%) compared with 12 months earlier. This decline was largest in accommodation and food services, while employment in professional, scientific and technical services increased (see chart below).

Growth in self-employment stalled in November, and this group remained furthest from November 2019 (-4.5%; -131,000) and from the February pre-COVID level (-4.7%; -136,000).

EMPLOYMENT DECLINES IN LEISURE ACTIVITIES & ACCOMMODATION AND FOOD SERVICES

In November, employment in information, culture and recreation declined by 26,000 (-3.5%), the first notable decline for this industry since April. Employment fell for a second consecutive month in Quebec, where restrictions on public gatherings had been notably tightened as of the Labour Force Survey reference week. At the national level, employment in information, culture and recreation was 10.5% lower in November than in February (see chart below).

Employment in accommodation and food services declined for the second consecutive month, falling by 24,000 (-2.4%) in November, with the drop being shared between Ontario, Manitoba and Quebec. Nearly 1 in 10 (8.9%) employees in accommodation and food services worked less than half their usual hours in November—the third-highest share among all industries, following business, building and other support services (10.3%), and transportation and warehousing (9.2%) (not seasonally adjusted).

Statistics Canada conducted the Canadian Survey on Business Conditions to collect information on businesses’ expectations moving forward from mid-September to late October. Almost one-quarter of businesses in accommodation and food services (22.5%) expected to reduce their number of employees over the next three months, more than double the average across all businesses (10.4%).

SECOND CONSECUTIVE EMPLOYMENT INCREASE IN RETAIL TRADE

In retail trade, employment grew for the second consecutive month, rising 1.5% in November (+32,000), with most of the month-over-month increase in Ontario. Shutdowns of in-person shopping at non-essential retailers were introduced in Toronto and Peel on November 23, after the LFS reference week. They may be reflected in the December LFS results. December results may also shed light on the effect of tighter restrictions in other provinces such as Manitoba and Alberta.

At the national level, the employment increase in November brought retail trade within 3.7% of its pre-COVID employment level.

EMPLOYMENT GROWTH RESUMES FOR CONSTRUCTION AND TRANSPORTATION AND WAREHOUSING

Employment in construction rose by 26,000 (+1.9%) in November, the first increase since July, largely due to a 5.5% (+28,000) increase in Ontario. Nationally, employment in construction was 5.7% below its February level.

After pausing in October, employment growth resumed in transportation and warehousing in November (+20,000; +2.1%). The increase was largely the result of gains in Ontario and British Columbia, bringing employment in this industry to within 6.4% of its pre-COVID level.

FINANCE, INSURANCE, REAL ESTATE, RENTAL AND LEASING NOW EXCEEDING PRE-COVID EMPLOYMENT LEVELS

Employment rose for the third consecutive month in finance, insurance, real estate, rental and leasing, up by 15,000 (+1.2%). The recent employment growth in this industry pushed it fully into recovery territory, surpassing its February level by 2.3%.

EMPLOYMENT UP IN NATURAL RESOURCES FOR THE SECOND CONSECUTIVE MONTH

In natural resources, employment rose for the second consecutive month, rising 3.1% in November (+10,000) and returning to its pre-COVID level. The month-over-month gain was nearly equally split between Alberta and British Columbia. Data for this industry over the next few months may shed light on Alberta’s impact, ending its limits on oil production in December, allowing producers to utilize available pipeline capacity and increase employment.

Labour market conditions vary across provinces

Employment increased in six provinces: Ontario, British Columbia and in all four Atlantic provinces. Manitoba experienced its first employment loss since April, while the number of people with a job or business held steady in Quebec, Saskatchewan and Alberta.

By November, employment levels in Newfoundland and Labrador, Nova Scotia and New Brunswick had returned to pre-COVID levels. Employment was nearest February levels in British Columbia (-1.5%) in November and farthest in Manitoba (-4.8%) and Alberta (-4.9%).

EMPLOYMENT GROWTH CONTINUES TO SLOW IN CENTRAL CANADA

Following average monthly employment growth of 3.1% from June to September, Ontario saw slow growth in October. This continued in November, as employment rose by 37,000 (+0.5%), mostly in full-time work. Employment in the Toronto CMA was at a standstill in November after increasing for five consecutive months. The Ontario unemployment rate fell 0.5 percentage points to 9.1%.

The largest employment gain was in construction, an industry not affected by recent restrictions. Simultaneously, there were declines in accommodation and food services amid the tightening of public health measures in the City of Toronto and the Region of Peel.

Employment in Quebec was little changed for the second consecutive month. In the Montréal CMA, employment was flat for the second consecutive month following average monthly growth of 3.8% from May to September. The Quebec unemployment rate fell 0.5 percentage points to 7.2% as fewer people were on temporary layoff.

Employment fell in accommodation and food services and information, culture and recreation, coinciding with the targeted public health measures since October. Employment increased in professional, scientific and technical services.

CONTINUED EMPLOYMENT GROWTH IN BRITISH COLUMBIA

Just before the start of the LFS reference week of November 8 to 14, the Vancouver Coastal Health Region and the Fraser Health Region introduced new restrictions on social gatherings, travel, gyms, and indoor sports facilities as new COVID-related workplace safety requirements.

Despite these new restrictions, employment in British Columbia grew by 24,000 (+1.0%) in November, adding to the gains over the previous six months (+335,000). Losses in part-time employment partly offset gains in full-time work. Several industries saw increases, including accommodation and food services, transportation and warehousing, wholesale and retail trade, and construction. The unemployment rate fell 0.9 percentage points to 7.1%.

Employment grew (+1.2%) in the Vancouver CMA, albeit slower than in the previous two months.

MORE PEOPLE WORKING IN ATLANTIC CANADA

Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick all had employment gains in November.

Nova Scotia posted the largest employment increase among the Atlantic provinces, up 10,000 (+2.2%), continuing the upward trend since April. The increase in November was mostly in full-time work. The unemployment rate fell 2.3 percentage points to 6.4%, the lowest since March 2019 and the lowest among the provinces.

New Brunswick posted its first significant employment gain (+4,200; +1.2%) since the substantial increases in May and June. The increase in November was nearly all in full-time work, and the unemployment rate fell 0.5 percentage points to 9.6%.

Employment in Newfoundland and Labrador rose for the seventh consecutive month, up 2,300 (+1.0%) in November, and regained all of the losses sustained since February. The unemployment rate in November was little changed at 12.2%. Industries with employment losses at the start of the pandemic, such as natural resources, construction and manufacturing, saw small increases in subsequent months and offset the declines in March and April. Others, such as healthcare and social assistance and public administration, continued to gain employment in recent months, pushing their employment above February levels.

Prince Edward Island also had more people working in November (+1,000; +1.3%), and the unemployment rate was 10.2%.

EMPLOYMENT LOSSES IN MANITOBA

Employment in Manitoba decreased by 18,000 in November, nearly all in part-time work. This was the first notable decline since April and coincided with tighter public health measures introduced in early November for the Winnipeg metropolitan region and the rest of the province by the LFS reference week. The largest employment decrease was in accommodation and food services. The unemployment rate was little changed in November at 7.4% as fewer Manitobans participated in the labour market.

In both Saskatchewan and Alberta, there was little employment change in November. As of the LFS reference week of November 8 to November 14, both provinces had largely avoided introducing tighter public health measures. The unemployment rate in Saskatchewan increased 0.5 percentage points to 6.9%, with more people looking for work, while the Alberta unemployment rate was little changed at 11.1%.

Bottom Line 

The economic recovery remains dependent on the evolution of the pandemic. The best news we’ve had in the past month is the successful development of efficacious vaccines. The timing of approvals and distribution is uncertain, but it is safe to say that the worst of the pandemic will continue this winter, with a seasonal reprieve in the spring and summer. By then, the distribution of the vaccine will hopefully be well underway. That means that 2021 will be a transition year, and in 2022 we can expect the economy can move from recovery to expansion.

There was good news in this Labour Force Report. Although job gains slowed, total hours worked rose by an impressive 1.2% m/m. Following a decent 0.8% rise in the prior month, this big gain “builds in” a strong 14% annualized gain for all Q4 for hours worked. Note that total hours are one of Ottawa’s three new “guardrails” for judging when to rein in fiscal stimulus; both of the other two also improved, with unemployment falling 81,000 and the employment rate nudging up 0.1 tick to 59.5% (it’s still 2.3 ppt below pre-Covid levels). Average hourly wages eased again, as expected, but remain robust at 5.0% y/y.

We suspect the job cuts in the hospitality sector, and possibly retail, will bite much deeper in next month’s report, as restrictions tightened notably immediately after this survey period. Overall, the report is firmer than expected and suggests that the economy is dealing a bit better than anticipated with the early stages of the second wave.

Rebounding Q3 Canadian Economy Stalls in Q4

The Canadian economy rebounded sharply in the third quarter, posting its most rapid expansion ever. Still, it was a lower than expected gain, and early data show that momentum is quickly fading in the face of a second wave of the pandemic.

Gross domestic product rose by a massive 40.5% annual rate in Q3, reversing much of the historic 38.1% plunge in Q2 (revised from -37.8%). No matter how impressive the Q3 bounce was, it fell short of well-telegraphed expectations—even yesterday’s Fall Fiscal Statement assumed a 47.5% surge, reflecting the widespread reopening of the economy. Still, thanks to the magic of upward revisions to prior quarters (stretching back years), it appears that the economy is headed for roughly an annual decline of about 5.7% this year. The rebound brings total output to 95% of pre-pandemic levels.

With the huge second wave in COVID cases, renewed restrictions have been implemented across the country in recent weeks, assuring that the Q3 rebound has stalled in the fourth quarter. Today’s news that September’s monthly GDP growth was a solid +0.8% and October’s first estimate is +0.2% is moderately encouraging. Even so, economic activity is likely to flatten in November and decline in December, holding Q4 growth to a 0-to- 2% annual pace.

The big bounce in Q3 left GDP down 5.2% from a year ago for the quarter. But the gain in October brings the latest monthly tally to down less than 4% y/y.

As shown in the table below, the big “miss” in Q3 GDP growth was mostly attributed to the decline in inventories. Otherwise, the picture was one of a massive snap-back in activity from the spring shutdowns. There were triple-digit annualized rebounds in housing, capital spending on machinery & equipment, and imports. Housing grew at a record 187.3% q/q annual rate, the strongest component of the economy. Housing was also up 9.5% year-over-year. 

Consumers Led the Way

Consumption, which led to the contraction in the second quarter, rose 63% (annualized) as consumers rushed to spend after being shutout from most stores during the lockdown period. Shifts in spending patterns due to health concerns and ongoing restrictions on businesses most affected by the pandemic (i.e. restaurants, travel, tourism) resulted in consumers spending lavishly on durable goods (+263%). Non-durables also saw strong growth for the quarter (+19%). The level of durables and non-durables spending was 7.7% and 3.7%, respectively above pre-pandemic levels. On the other hand, with the pandemic weighing on demand for high-contact services, total spending on services was still well below pre-pandemic levels (-12.4%), despite growing quickly in the third quarter (44.3%).

There has been intense focus on household finances through the pandemic, and while the savings rate pulled back in Q3, it remained at very high levels at 14.6% (versus the record 27.5% in Q2). Compared with pre-virus trends, household savings have swelled at least $150 billion above where they may have expected to have been in more normal times (i.e., excess savings). While disposable incomes dropped last quarter, they were still up a towering 10.6% y/y, compared with a modest 3.8% rise in 2019.

On top of that, overall consumer spending is still down 3.7% y/y in nominal terms, as services spending remains heavily constrained by circumstances. That yawning gap between an income spike and constrained spending has lifted savings massively, reflecting the government programs to cushion the pandemic’s blow, including mortgage and other deferrals and income support programs.

Yesterday’s federal fiscal update confirmed that the government support would be enhanced, taking the federal budget deficit to over $381 billion this year. Canada has already provided the largest COVID-related fiscal stimulus among the industrialized nations. We started the period with the lowest government-debt-to-GDP ratio in the G7 at 31%, but it is expected to rise to over 50% next fiscal year.

Like consumption, business investment also rebounded sharply, growing 82.4% annualized in the third quarter. Machinery and equipment (+91.8%) and intellectual property products (+30.8%) contributed to the pick-up, while investment in non-residential structures continued to decline (-1.2%). The main factor, however, fueling the increase was residential investment (+187.3%). The housing market ran red-hot as pent-up demand, low interest rates, and pandemic-induced shift in preferences sent sales and prices to record-levels this summer.

The upturn in housing investment was led by ownership transfer costs (+109.5%, q/q) and, to a lesser extent, renovations (+17.7%, q/q). The increase in ownership transfer costs was widespread, as home resale activities resumed across the country, with sharp increases in resale units and prices. New construction increased 9.7% q/q, after a 7.6% q/q decline in the second quarter. The increases coincided with low mortgage rates, improved job market conditions, and higher employee compensation in the third quarter.

In terms of trade, exports and imports grew strongly (exports: 71.8%; imports: 113.7%). Given that imports grew faster than exports, net trade weighed on the GDP calculation for the quarter.

Canada’s labour market regained almost a third of the jobs lost during March and April in the third quarter, and as such, compensation of employees rebounded for the quarter (+35.5%). Government transfers through employment insurance benefits, which supported income through the second quarter, declined by 91.9% but remained historically elevated. On the whole, household disposable income declined by 12% in the third quarter. However, the savings rate remained at 14.6% as the rebound in consumption was offset by the bounce back in compensation and still-high government transfers. Finally, the gross operating surplus, a measure of corporate profits, improved by 59.3% for the quarter.

Bottom Line

The Canadian economy will decline roughly 5.7% this year before rebounding 5.5% in 2021 (yesterday’s Fall Fiscal Statement was based on a 5.8% drop for 2020 and a 4.8% rise next year). The prior largest yearly decline was a drop of 3.2% in 1982, while the anticipated growth next year would be the best since 1984. And lest anyone doubt the ability of the economy to recover at that pace, consider: a) some of the growth rates seen in Q3, which could be a taste of what could lie ahead later in 2021; b) the added fiscal stimulus still on its way; and c) the degree of excess savings that households now have at their disposal to unleash in the coming year.

Federal Fiscal Update–Finance Minister Freeland’s Debut

Justin Trudeau’s government, which has delivered the biggest COVID-19 fiscal response in the industrialized world, announced plans for another dose of stimulus and vowed to continue priming the pump as long as needed.

Finance Minister Chrystia Freeland unveiled $51.7 billion of new spending over two years in a mini-budget Monday, led by an enhanced wages subsidy for business. Freeland also pledged, without detailing, another $70 billion to $100 billion of additional stimulus over three years to spur the recovery.

But the finance minister clearly heeded calls for fiscal prudence. She put off any major structural spending announcements, promised any additional stimulus will be temporary and introduced new taxes on digital giants including Netflix, Amazon, and Airbnb, to help pay for it all.

“Our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth,” Freeland said. It will provide “the fiscal support the Canadian economy needs to operate at its full capacity and to stop COVID-19 from doing long-term damage to our economic potential.”

Freeland revised higher the nation’s projected deficit this year to $381.6 billion, or 17.5% of GDP. That’s up from a deficit of 1.7% of GDP last year. According to estimates from the International Monetary Fund, no major economy will show a bigger fiscal swing in 2020.

The budgetary red ink is projected at $121 billion next year, before any additional stimulus. In total, spending linked to the government’s COVID response accounted for C$75 billion of this year’s deficit, and C$51 billion next year.

Based on Monday’s projections, the deficit is seen gradually narrowing to about $51 billion in two years and $25 billion by 2025.

The planned stimulus over the next three years will total no more than 4% of GDP, which the document said is in line with the Bank of Canada’s estimate of the level of slack in the economy. Freeland said, “fiscal guardrails” tied to the labour market would help determine the extent of the additional stimulus.

Among the measures announced today, Freeland boosted the government’s wage subsidy program (Canada Emergency Wage Subsidy, CEWS) to cover as much as 75% of payroll costs for businesses and extended its commercial rent subsidy and lockdown support top-ups until March. Both were slated to run out on December 20. The current cap on CEWS was 65%.

The federal government plans to create a new funding program to help restaurants, tourism companies and other businesses in industries hardest hit by COVID-19.

The Highly Affected Sectors Credit Availability Program (HASCAP), which was announced in the government’s fiscal update Monday, will offer eligible businesses loans of up to $1 million, with a 10-year term.

The money will be lent by banks or other financial institutions, but guaranteed by the federal government.

“We know that businesses in tourism, hospitality, travel, arts and culture have been particularly hard-hit. So we’re creating a new stream of support for those businesses that need it most — a credit availability program with 100-per-cent government-backed loan support and favourable terms for businesses that have lost revenue as people stay home to fight the spread of the virus,” Finance Minister Chrystia Freeland said in her prepared speech to the House of Commons.

Establishing a national childcare plan is a key long-term goal, with Freeland vowing a detailed plan in next year’s budget. In her forward to the fiscal update, she described the daycare strategy as “a feminist plan” that also “makes sound business sense.”

As a start, the Liberals are proposing in their fiscal update to spend $420 million in grants and bursaries to help provinces and territories train and retain qualified early childhood educators.

The Liberals are also proposing to spend $20 million over five years to build a child-care secretariat to guide federal policy work, plus $15 million in ongoing spending for a similar Indigenous-focused body.

The money is designed to lay the foundation for what will likely be a big-money promise in the coming budget.

Current federal spending on child care expires near the end of the decade, but the Liberals are proposing now to keep the money flowing, starting with $870 million a year in 2028.

There is also money for action on climate change. The government allocated C$2.6 billion in grants for homeowners to improve efficiency and $150 million over three years for electric vehicle charging stations.

The government also detailed some help for the hard-hit tourism sector, including funding for airports. But with Transport Minister Marc Garneau’s negotiations with airlines underway, there is no specific money for carriers including Air Canada and WestJet Airlines Ltd.

Bottom Line

There will continue to be great concern about the largest budget deficits since World War II. Does Canada really need the proportionately largest COVID fiscal response in the industrialized world?  The outlook is somewhat less dire than when the government released a fiscal snapshot in July. The unemployment rate at 8.9% is down materially from May’s 13.7% high but well above February’s 5.6%. The economy recovered ground through the third quarter, although the second wave of pandemic and ensuing restrictions undoubtedly will topple economic activity this quarter.

There is little worry that the government can sustain a massive deficit this year. It can, given low debt levels entering the crisis and historically low interest rates. But now that it has no fiscal guardrails, there’s a risk debt-to-GDP will continue to rise in the medium term if it continues to spend ambitiously.

The government is adding a new revenue source by taxing large digital companies. Still, in time, with this level of spending, they will be tempted to raise taxes on domestic sources, for example, hikes in the GST and higher capital gains taxes. This would be misguided, given the fragility of the recovery.

There is a greater risk that the government is overdoing the stimulus with vaccines on the horizon than undergoing it. Canada’s programs have been generous and household-focused compared to our G7 peers. The government must be strategic in assuring that new program spending is focused on future growth, beyond the pandemic, so that our debt-to-GDP will resume its downward trend. The risk is that once created; it is difficult to rein in spending.

Canada’s Jobs Recovery Slowed in October With New Pandemic Restrictions

The October Labour Force Survey, released this morning by Stats Canada, showed an employment increase of 83,600–well below the 378,000 gain in September and average monthly gains of 395,000 over the past six months (see chart below). Several provinces tightened public health restrictions last month in response to a spike in COVID-19 cases. These measures were targeted at indoor restaurants and bars, and gyms.

Most of the job gains last month were in full-time work. Among those who worked at least half their usual hours, the number working from home increased by 150,000. Working remotely continues to be an important adaptation to COVID-19 health risks, with 2.4 million Canadians who do not normally work from home doing so in October.

The unemployment rate was little changed at 8.9% in October but remained well-below the May peak of 13.7%. In addition to the unemployed, 540,000 Canadians wanted to work in October but did not search for a job, down 39,000 from September and continuing a downward trend from a peak of 1.5 million in April. If people in this group were included as unemployed, the adjusted unemployment rate in October would be 11.3%.

Long-term joblessness—defined as unemployed and looking for work or temporary layoff for 27 weeks or more— increased again in October. Not surprisingly, more than half (53.3%) of the long-term unemployed were living in a household reporting difficulty meeting necessary expenses. As of October, the long-term unemployed totalled 448,000, or one-quarter of all unemployed people. September and October increases in long-term unemployment are by far the sharpest recorded since comparable data became available in 1976.

Job Gains Slow in Central Canada

Employment increased in the wholesale and retail trade industries in Ontario, two sectors largely unaffected by new COVID-19 restrictions. After five months of gains totalling 154,000, employment in Ontario’s accommodation and food services was virtually unchanged in the month and remained 15.7% below its pre-COVID February level. Employment declined in transportation and warehousing.

Following five consecutive months of gains, employment was little changed in Quebec in October, and the unemployment rate edged up 0.3 percentage points to 7.7%. Employment gains spread across several services-producing industries were partly offset by a drop of 42,000 in the accommodation and food services industry. The public health alert level in Montréal and Québec City was raised to “red” on October 1, which led to the closure of indoor restaurants and many cultural facilities. Travel between regions in the province was also discouraged. Over the subsequent two weeks, several other Quebec regions went to red alert, and additional measures were introduced.

Employment Grows in Alberta and BC

In British Columbia, employment grew by 34,000 (+1.4%) in October, adding to gains over the previous five months (+302,000). The unemployment rate fell for the fifth consecutive month, down 0.4 percentage points to 8.0% in October. In Vancouver, employment increased by 52,000 (+3.8%) and was within 4.3% of its pre-COVID level.

In Alberta, employment rose by 23,000 (+1.1%), the fifth increase in six months. Following large employment losses earlier this year, Calgary has posted four consecutive employment gains since summer, totalling 101,000 (+13.6%). Recent employment increases in Edmonton have been more modest, up 60,000 (+9.0%) since summer.

October employment gains in Alberta were spread across several industries, including healthcare and social assistance, transportation and warehousing, and wholesale and retail trade. Employment in natural resources edged up in the month but was down 5.2% on a year-over-year basis.

Employment Increases in Newfoundland and Labrador and PEI

In Newfoundland and Labrador, employment grew (+5,900) in October, while the unemployment rate fell 2.0 percentage points to 12.8%. Employment was also up in Prince Edward Island (+900), while the unemployment rate was virtually unchanged at 10.0%.

Hard-Hit Sectors of the Economy

The accommodation and food services industry was most directly affected by the recent tightening of public health measures—and, for the first time since April, employment declined in this industry in October. Employment in the arts, entertainment, and recreation sectors was farther from pre-COVID levels than any other sector in August. The next few months will shed light on the impact of public health restrictions on employment in this sector, which, like the accommodation and food services industry, has strong ties to travel and tourism.

With restrictions on travel and gathering still in place, the continuing impact of COVID-19 has been much more significant for the transportation of people than of goods. For example, the August Survey of Employment, Payrolls and Hours found that payroll employment in transit and ground passenger transportation was down by 17.8% from February to August, while payroll employment in truck transportation—primarily for goods—was down 7.9% for the same period. Similarly, in August, major Canadian airlines carried 86.8% fewer passengers than 12 months earlier, and Canadian railways carried 14.7% less freight.

In construction, employment was little changed for the third consecutive month in October, following increases totalling 190,000 (+16.2%) from April to July. Employment in construction was 7.5% (-112,000) below its February level in October. Recent data on housing starts showed a decline of 5.0% from September 2019 to September 2020, following two months of strong year-over-year increases.

Employment Growth Resumed in Retail Trade

Following a pause in September, employment growth resumed in retail trade, rising by 31,000 (+1.4%) in October, with most of the increase in Ontario. From February to April, employment declined by over one-fifth (-22.9%; -517,000) due to retail businesses’ closures during the first wave of COVID-19. In October, public health measures associated with the second wave did not include retail businesses’ requirements to close. Employment in this industry was 5.1% (-115,000) below its pre-COVID level and down by 2.4% (-54,000) compared with October 2019.

The Winners

Employment exceeded pre-COVID levels in three industries in October—wholesale trade; professional, scientific and technical services; and educational services.

In wholesale trade, employment increased by 15,000 (+2.3%) in October, driven by Alberta increases. Employment in this industry was 5.6% (+35,000) above its February level. The wholesale trade release’s latest results show that sales increased for the fourth consecutive month in August and were 1.7% above pre-COVID-19 levels.

Employment rose for the fourth consecutive month in professional, scientific and technical services, up 42,000 (+2.7%) in October and led by Ontario (+23,000). With this gain, this industry’s employment was 3.3% (+51,000) higher than its pre-COVID level. Job security among employees in this industry includes computer systems design and related services; architecture, engineering and related services; and legal services tend to be higher than in other industries.

Employment was little changed in educational services in October but exceeded its February level by 2.8% (+39,000). Compared with October 2019, employment in this industry increased by 32,000, in part a reflection of some jurisdictions increasing staffing levels to support classroom adaptations brought on by COVID-19.

Compared with other industries, a relatively high share of workers in educational services (25.8% in 2019) is temporary employees, reflecting the relatively high prevalence of teaching staff hired on a contract basis. While the number of temporary employees decreased markedly following the initial COVID-19 economic shutdown, it had rebounded in October (little changed on a year-over-year basis, not seasonally adjusted), helping to boost overall employment in the industry. Permanent employees in educational services also contributed to the recovery of this industry on a year-over-year basis. In October, the number of permanent employees was up 5.6% compared with 12 months earlier (not seasonally adjusted).

Bottom Line 

The economic recovery remains dependent on the evolution of the pandemic. It is likely that extensive lockdown measures, such as the widespread closures imposed early in the pandemic, will not be reintroduced. However, more localized and moderate containment measures will ebb and flow. The Bank of Canada suggests that vaccines and effective treatments will be widely available by mid-2022, at which time the direct effects of the pandemic on economic activity will have ended. However, households’ precautionary behaviour and the effects of the uncertainty surrounding COVID-19 are likely to linger.

The pandemic is also likely to have persistent effects on the preferences and behaviours of consumers and businesses. This could lead to lasting changes to the economy’s structure and could weigh on its potential output. The sizes and timing of such effects are difficult to estimate precisely. Given these considerations, the outlook for Canadian and global economic activity remains unusually uncertain.

The most recent COVID Consumer Spending Tracker, produced by the RBC economics group, that second wave worries have shifted more spending online. Household, clothing, and retail spending held steady, while travel spending continued to decline. Spending on dining out edged downward last month as cooler whether rendered outdoor dining less appealing. Entertainment expenditures ticked downward as well.

The regional real estate boards in Vancouver, Toronto and Montreal recently released their October housing reports showing continued sales activity and upward price prices except in the condo space, particularly smaller condos that were bought on spec for the rental market. With the nosedive in tourism, the short-term rental market has collapsed. Many of these former Airbnb properties are either for sale or have moved into the long-term rental space, driving down prices. The dearth of immigration this year has also exacerbated the decline in rent. Condo listings are rising faster than sales in many regions. In contrast, lower rise properties remain in very tight supply, and prices continue to rise. We will provide more details on housing trends with the release of the CREA data late next week.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca