Get ready: In less than a month, we’ll get Canadian gross domestic product (GDP) data for the second quarter of 2020. Why the warning? Well, the results will be grim. The latest data will cover the three-month period worst affected by COVID-19. Expect red ink everywhere and possible knock-on, immediate market reactions. It’ll be important to remember that this is backward-looking, and that the quarterly numbers will obscure a brighter picture in monthly movements. We’re in desperate need of good news. What is that brighter picture?
It’s painted by Statistics Canada’s efforts to give us a preview of data movements. Last Friday, the monthly GDP data were released. It may be dated info now, but there are some key observations that prep us for the upcoming quarterly release.
- The first key fact is that the economy bottomed out upfront in the quarter. That’s right: April was the big crunch.
- Almost all industries began the comeback in May, rising an outsized 4.5%.
- The June flash estimate is even more encouraging: Early indications are that the economy rose a further 5%, starting the third quarter off at a level that’s already 4.8% above the second-quarter average. Any further growth during the third quarter will add to that.
Growth of any magnitude is very welcomed at this point, but where does this put us?
- April data put the economy more than 18% below the pre-COVID-19 peak, after adjusting for inflation.
- May’s result lifted that, but we remained just under 15% down from pre-pandemic levels.
- June’s further boost leaves us about 10% off the “return-to-normal” mark. There’s still a fair distance to get to what most would call home plate.
By the way, that’s average performance. Remember, some will be better; others a lot worse. What do the data say about the journey different industries have been on? Let’s spool back to April. At the low point, services were the segments that got hammered. Accommodation and food services lost two-thirds of all output, while arts and entertainment, transportation and warehousing, retailing and other services shared the basement.
Who got off more lightly? Agriculture was barely touched; same for the finance and insurance industry, and utilities weren’t far behind. Construction, manufacturing and a group of services, including health and education, was middle-of the pack.
So, which industries are leading the way back?
- During May, construction and retailing both experienced double-digit reversals in the share of output lost since the pre-COVID-19 peak, and both find themselves just ahead of average.
- Finance and insurance were the least scathed overall for the month, and both primary agriculture and utilities maintained their superior positions.
- The accommodation and food sector saw a decent rebound, but it fell so far through April, it remained the worst-affected industry by a large margin, edging ahead of arts and entertainment.
- Perhaps reflecting the duress in exporting, the transportation and warehousing and manufacturing sectors were uncomfortably high on the list of worst-affected industries.
June numbers are harder to comment on. We have an estimate for total growth, but little else. If we can assume that similar trends prevail for all industries as in May—likely a bit of a stretch—then we can say that things are looking better for the goods-producing industries than for most services.
Under the same assumption, the construction, finance and insurance, and agriculture industries will all be back to pre-COVID-19 levels of activity in June. Real estate, utilities and retailing will be close.
On the other end of the spectrum, as expected, arts and entertainment, together with accommodation and food, will still be down on average at 50% of pre-COVID-19 output levels. This will likely persist well through 2020. Exporters should note that the manufacturing and transportation/warehousing sectors will continue to struggle, remaining below average on the recovery scale.
For manufacturing, it does depend very much on the sub-sector in question. Production of machinery is suffering, likely a result of tight business spending. The transportation sector is buoyed by a speedy return to production in the auto industry, but weighed down by aerospace. Textiles and primary metals also seem to be back-of-the-pack. Food, beverages, chemicals and the furnishing and appliance industries are the manufacturing sector’s current stars.
The bottom line?
Dated numbers are still telling scary stories. As such, it’s best to look at the details for signs of true recovery. Things are moving so quickly and radically that the details are more important than ever. These ones show an economy that’s on the way back, and points out those that are struggling, and those that are surfacing.
