COVID-19 Drags Canada into a Recession as March Job Losses Soar

The coronavirus (COVID-19) is having a much bigger impact on the Canadian and global economies than anyone could have ever imagined. Because large portions of the economy have been frozen, including restaurants, retail, factories, and mines, job losses have soared, and consumer spending has plunged. By all accounts, it is going to get worse before it gets better.

Did Canada Really Wipe Out Three Years of Job Gains in March?

The number of job losses in March cratered, with over a record one million jobs wiped out. In just one month more jobs were erased than created over the last three years. In just one month, roughly 20% of Canada’s workforce applied for income support. The biggest job losses came from the private sector (-830,000 or -6.7%) with public sector job losses down -3.47% (-144,600).

March job losses were expected to be big, but they even dwarfed what Bay Street was expecting. March employment was projected to fall by 500,000. The previous record for one-month job losses came in January 2009, the peak of the global recession, when the Canadian economy lost 125,000 jobs.

Not surprisingly, Canada’s unemployment rate soared to 7.8%, the largest one-month gain in over 40 years. That number is expected to rise again in April. That’s because no one knows how long the shutdowns will last and how that will impact further job losses.

Even on a proportional basis it is bad. Because of the coronavirus, Canada has lost more jobs than the U.S. And, when adjusted for U.S. methodology, Canada’s March unemployment rate stands at 6.9% compared to 4.4% in the U.S.

Is Canada Already in a Recession?

A recession is typically defined as two back-to-back quarters of negative GDP growth. Which means, we’re technically in a recession for two quarters before we’re officially told we are. We’re only in the early days of the second quarter of 2020, but it’s fair to say that all the data suggests Canada is in a recession. One that will be long and painful.

The Canadian economy was limping along at best before it was hammered by the coronavirus. Since March though, the Canadian economy has entered its darkest days. In mid-April, Statistics Canada announced its gross domestic product (GDP) data early, for the first time ever.

The preliminary March data showed that Canada’s GDP plunged by 9%; this represents the largest one-month GDP decline ever. More broadly, for the entire first quarter, this GDP estimate points to negative GDP growth of -2.6%.²

For investors, it’s important to note that some sectors were hit harder than others. Those hurt the most from the economic shutdown included travel and tourism, restaurants, accommodation, transportation, retail, entertainment, and sporting events.

Still, some sectors showed growth through the lockdown, including online retailing, streaming, food distribution, and health. With oil prices plunging, investors might think the oil and gas sector has been suffering. But both extraction and transportation remained stable in March.

Keep in mind, this is just first quarter GDP data. It’s just the tip of the iceberg. The Conference Board of Canada expects second quarter GDP to contract an additional 25%. Longer term, this points to full-year 2020 GDP decline of -4.3%.³

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