Show Transcript
Canada’s uneven recovery from the pandemic has been dubbed as “K-shaped,” implying a two-speed economy – the underperformers and the rest. Anthony Okolie speaks with Sri Thanabalasingam, Senior Economist, TD Bank, about whether the gap between the leaders and the laggards will narrow in 2021.
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- Well, we just got the latest Canadian jobs data for January and we lost nearly 213,000 jobs, which was much higher than expected. Sri, what's your take on the latest data?
- Well, Anthony, it does seem like restrictions are biting. Where we saw much of these job losses concentrated in were these high touch services industries, so that's your retail sector, your food and accommodation services. And so restrictions specifically coming in from Ontario and Quebec, where they tightened in late December, that fed through to job losses that we saw in January.
But one thing I do want to point out is that even though we saw these tremendous job losses, total hours work improved by 0.9% month-on-month. And so that would suggest to us that the economic activity may have held up even though you've had this job decline.
And one other thing is that with some of these provinces contemplating loosening restrictions-- we're going to start seeing that in Quebec as well as Alberta-- this might be the worst sort of decline before we start seeing improvements in terms of the labor market picture starting in February.
- OK, so based on these latest jobs numbers and recent GDP data, it still feels like the pandemic has hit some parts of the economy harder than others. And in your latest report, you refer to this uneven impact as a K-shaped recovery. Explain to us, what does that mean?
- So in terms of that K-shaped recovery, what many have dubbed as the K-shaped recovery, that is a summary of the fact that the pandemic has impacted some industries, specifically those, again, high touch services industries, a lot harder than industries where business can be conducted online or from home. And so you start to see this sort of two-speed economy take shape.
But what we've looked at is that looking through the GDP by industry data, it seems to be a little bit more in terms of a three-speed economy. You've had outperformers, you've had those underperformers, but then you also had many industries that were in this middle of the pack category that were still weighed down by the pandemic but not nearly as bad as those underperformers.
- OK, so which industries so far are the outperformers and which are the underperformers?
- So in terms of the outperformers, you've had many retail sectors, such as non-store retailers, this is online shopping. You also had housing-related retail sectors do very well. Real estate was also doing well. But then on the flip side, in terms of underperformers, this comes back to again these high touch services and also mining and oil industry as well.
- And what's driving the outperformance at the top end of the scale?
- So in terms of the top end the scale, if we think about online shopping, this was a trend that was already on the up in terms of Canada, and with the pandemic it's began to accelerate. And by November, output in non-store retailers was about 20% higher than what it was compared to the pre-pandemic times.
And then in terms of housing-related spending retail sectors, with people working from home, many of them looked to upgrade their home offices and upgrade their homes, and so you saw a lot more spending happen there as well. And finally, in terms of the real estate industry, the housing market has been running hot, and that, of course, has fed into great gains for that industry.
- And I think you touched on it earlier, but why are the bottom industries doing so poorly?
- So on the bottom end, of course there are these industries that have been hit hard by the pandemic, by the restrictions, so people were not able to go out and spend in these businesses. But then you also had some other industries, such as administration support services, these are the areas that would provide support for office buildings in terms of maintaining them. And they were impacted as well, because not many people are in offices, so there's less need for that sort of work. So you've had this sort of impact, again coming straight from the pandemic, weigh on these industries that are at the bottom end of the scale.
- So how do you see this recovery playing out for the rest of this year?
- In terms of the rest of this year, there's a lot of uncertainty, as you know. Much of it really depends on the vaccine, the roll out of the vaccine, and then the virus and whether any mutations of that virus will still be captured by the vaccine.
But say everything goes according to plan, then we should start seeing a narrowing of this uneven recovery as governments lift restrictions on some of these high touch services and people feel more confident in visiting those businesses again. And then you would start to see gaps between these industries' GDP levels start to narrow. But pandemic impacts will likely still linger and that would mean we would still see some unevenness in terms of economic activity compared to more normal times.
- Sri, thank you very much for your time.
- Thanks, Anthony.
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- Well, Anthony, it does seem like restrictions are biting. Where we saw much of these job losses concentrated in were these high touch services industries, so that's your retail sector, your food and accommodation services. And so restrictions specifically coming in from Ontario and Quebec, where they tightened in late December, that fed through to job losses that we saw in January.
But one thing I do want to point out is that even though we saw these tremendous job losses, total hours work improved by 0.9% month-on-month. And so that would suggest to us that the economic activity may have held up even though you've had this job decline.
And one other thing is that with some of these provinces contemplating loosening restrictions-- we're going to start seeing that in Quebec as well as Alberta-- this might be the worst sort of decline before we start seeing improvements in terms of the labor market picture starting in February.
- OK, so based on these latest jobs numbers and recent GDP data, it still feels like the pandemic has hit some parts of the economy harder than others. And in your latest report, you refer to this uneven impact as a K-shaped recovery. Explain to us, what does that mean?
- So in terms of that K-shaped recovery, what many have dubbed as the K-shaped recovery, that is a summary of the fact that the pandemic has impacted some industries, specifically those, again, high touch services industries, a lot harder than industries where business can be conducted online or from home. And so you start to see this sort of two-speed economy take shape.
But what we've looked at is that looking through the GDP by industry data, it seems to be a little bit more in terms of a three-speed economy. You've had outperformers, you've had those underperformers, but then you also had many industries that were in this middle of the pack category that were still weighed down by the pandemic but not nearly as bad as those underperformers.
- OK, so which industries so far are the outperformers and which are the underperformers?
- So in terms of the outperformers, you've had many retail sectors, such as non-store retailers, this is online shopping. You also had housing-related retail sectors do very well. Real estate was also doing well. But then on the flip side, in terms of underperformers, this comes back to again these high touch services and also mining and oil industry as well.
- And what's driving the outperformance at the top end of the scale?
- So in terms of the top end the scale, if we think about online shopping, this was a trend that was already on the up in terms of Canada, and with the pandemic it's began to accelerate. And by November, output in non-store retailers was about 20% higher than what it was compared to the pre-pandemic times.
And then in terms of housing-related spending retail sectors, with people working from home, many of them looked to upgrade their home offices and upgrade their homes, and so you saw a lot more spending happen there as well. And finally, in terms of the real estate industry, the housing market has been running hot, and that, of course, has fed into great gains for that industry.
- And I think you touched on it earlier, but why are the bottom industries doing so poorly?
- So on the bottom end, of course there are these industries that have been hit hard by the pandemic, by the restrictions, so people were not able to go out and spend in these businesses. But then you also had some other industries, such as administration support services, these are the areas that would provide support for office buildings in terms of maintaining them. And they were impacted as well, because not many people are in offices, so there's less need for that sort of work. So you've had this sort of impact, again coming straight from the pandemic, weigh on these industries that are at the bottom end of the scale.
- So how do you see this recovery playing out for the rest of this year?
- In terms of the rest of this year, there's a lot of uncertainty, as you know. Much of it really depends on the vaccine, the roll out of the vaccine, and then the virus and whether any mutations of that virus will still be captured by the vaccine.
But say everything goes according to plan, then we should start seeing a narrowing of this uneven recovery as governments lift restrictions on some of these high touch services and people feel more confident in visiting those businesses again. And then you would start to see gaps between these industries' GDP levels start to narrow. But pandemic impacts will likely still linger and that would mean we would still see some unevenness in terms of economic activity compared to more normal times.
- Sri, thank you very much for your time.
- Thanks, Anthony.
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