Post-mortem: Pandemic value (s) | Financial post



Financial Post columnist Kevin Carmichael, editor-in-chief of the FP Economy newsletter, discusses the week in economics

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Financial Post columnist Kevin Carmichael, editor of the FP Economy newsletter, discusses the week in economics.


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Everywhere except the crying

Statistics Canada reported on June 30 that gross domestic product (GDP) fell 0.3% in April, the first monthly drop since the COVID-19 recession bottomed out a year earlier.

The drop was actually a pleasant surprise to most Bay Street forecasters, as they predicted the third wave of the pandemic would take a bigger toll. Instead, GDP is incredibly close to where it was at the start of the crisis.

Statistics Canada’s May GDP flash estimate, based on incomplete survey data, projects a further decline of 0.3%. But with vaccination rates climbing rapidly, this could be the last negative reading for some time. Certainly, the Delta variant of COVID-19 is of concern; otherwise, it seems little stands in the way of one of the strongest periods of growth the country has ever seen this summer.


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The following graphic provides an overview of where we are. It’s an index of the rate of change in GDP with a handful of industries. The severity of the crisis depends a lot on what Canadians choose to do for a living.

Pandemic values

Canada is a rich country. The past decade has presented him with a glorious opportunity to capitalize on that wealth, as interest rates have spent much of that time closer to zero than ever before. So what did we do with this never seen before opportunity? Buy houses, mainly.

It is a problem. One of the reasons that Canada’s productivity rate is so low is that the country is spending too much of its wealth in an unproductive sector. Yet policymakers have created a system that encourages home ownership, fueling demand where there is already a lot. The following graph shows the evolution of GDP since 2009 and the share of this total represented by certain industries. The lines speak for themselves.


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Wage restriction

There was more shocking inflation figures last week. Statistics Canada reported on June 30 that its industrial product price index jumped 16.4% in May from the previous year, the largest increase since 1980.

Commodity prices moderated in June and the Bank of Canada remains confident that the inflation boom this spring will be temporary, so the worst may be over. The test will be the extent to which producers are willing to absorb higher input costs, and if workers start demanding higher wages to offset the rising cost of living.

It’s hard to get a good read of what’s going on with wages because so many people remain unemployed. Most of the unemployed were in the lower rungs of the wage spectrum, so the current pool of workers is made up of people who tend to earn relatively higher wages. This makes year-to-year comparisons difficult.


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The following chart includes the average weekly wage across various industries that have mostly not been affected by social distancing, so the pool of workers available to these sectors has likely changed little by the crisis. To reduce the noise even further, he compares monthly changes in the average weekly wage over two years instead of one, as year-over-year readings could be skewed by the general economic collapse that immediately followed the first wave.

The chart is far from the last word on inflation, but there is little evident wage pressure outside of construction.

  1. Nothing

    “Inflation is like the brown stain on a banana, by the time you see it it’s way too late”: Benjamin Tal of CIBC

  2. A real estate sign in front of a house in Toronto.

    The main victim of rising interest rates will be the Canadian real estate market

  3. Former Finance Minister Jim Flaherty fought to establish a national securities regulator.

    Flaherty’s dream of a national securities regulator victim of “friendly fire”

  4. Cargo ships at the Port of Vancouver.

    Canada posts unexpected trade deficit in May as exports decline


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Exports wavered in April, as a sharp rise in the value of the loonie squeezed the yield on US dollar-denominated goods, Statistics Canada said on July 2.

However, the 1.6% drop from March did not change the situation, namely that exports are contributing to the recovery, without hurting it. Exports were lackluster after the Great Recession, depriving the economy of one of its most important drivers. This partly explains why business investment has also been low, as the two are closely correlated. So it wouldn’t be surprising for executives to start deploying more capital, adding to the tailwind that is pushing the economy into a strong second half.

“We are seeing strength in all areas,” Anthony Caputo, general manager of Can Art Aluminum Extrusion LP, a specialty auto parts manufacturer based in Brampton, Ontario, told FP Economy. “There’s going to be a lot of global expansion, a lot of North American expansion.”


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Gravitational traction

The United States will always be the destination of most Canadian exports: the gravitational pull of an economy this large and so close is just too strong.

But the center of gravity of the global economy is shifting to Asia, where growing middle classes in China and elsewhere are generating growth that advanced economies in Europe and North America simply cannot match. Asia’s relative success in controlling the containment of COVID-19 has accelerated this trend, so much so that even Canada’s notoriously risk-averse exporters are drawn into the action.

The following graph is an index of the rate of change in merchandise exports to certain countries since the start of the crisis (Zero = January 2020). The United States and trade in general are essentially the same, as Canada generates about 70 percent of its export revenues south of the border. Americans are still great customers, but something is happening on the sidelines.

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• Email: [email protected] | Twitter: carmichaelkevin


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