I think it was Wednesday, March 18, and Prime Minister Justin Trudeau was giving yet another increasingly ominous press conference from the steps of Rideau Cottage, where he has been self-isolating with his wife, sick with COVID-19.
A reporter asked about a possible recession, or something along those lines. I wanted to reach through the TV, grab that reporter and give him a shake, Jean Chretien-style.
Was he kidding?
A recession is defined as negative growth (or a contraction) of the economy for two consecutive quarters.
Over the past 10 days or so (writing this on March 21), we have seen almost the entire economy put on pause. If you don’t have an economy, forget about a recession. We’re talking depression, and a very, very deep one, one deeper that the 1930s. Or worse.
On Friday, March 20, the Dow Jones closed at 19,173, down another 913 points from the day before. On Feb. 12, it was 29,551. That’s a collapse of 10,378 points, or 35 per cent in five weeks.
On Feb. 20, the TSX Composite Index was 17,944. A month later it closed at 11,852, down 319 from the day before. That’s a 6,092 drop, or 34 per cent drop, in four weeks. In other words, a little more than one third of the supposed (and perhaps inflated) value of North American stocks just vanished, and there’s no floor in sight.
I’m no economist, but I’m no idiot, either.
The National Post a couple days ago posted a graphic showing the GDP values from Statistics Canada of various parts of our economy under threat as of December 2019. Here’s the numbers: Arts, entertainment and recreation, $15.7 billion; agriculture, forestry, fishing, hunting, $40 billion; accommodation and food services, $45.1 billion; transportation and warehousing, $89.6 billion; Educational services $109.8 billion; finance and insurance, $133.6 billion; construction, $142.5 billion; mining, quarrying, oil and gas, $145.9 billion; manufacturing, $199.2 billion; real estate, rental and leasing, $254.3 billion.
That’s not inclusive of the entire economy, as government spending is not listed, and that’s going to skyrocket. But the total is $1.176 trillion. By my very rough, not economist estimates, as much as $288 billion of that is under direct threat if not totally shut down right now. Arts and entertainment, i.e. sports? Done. Hotels and restaurants are being reduced to next to nothing, if open at all. We’ve shut down every school from the Rockies to the Atlantic (although teachers are still being paid). Finance is in a tailspin. You can’t do much construction if everyone is told to go home. Oil and gas has seen an utter collapse in prices that, by itself, would bring the industry to it knees worse than a left hook from Mike Tyson.
Manufacturing is shutting down all over. The entire auto industry stopped making cars and trucks across North America. Let me say that again. THE ENTIRE AUTO INDUSTRY STOPPED MAKING CARS AND TRUCKS. In recent times, it was a crisis leading headlines for weeks when GM said it was going to close its Windsor plant. Now the whole industry just got sidelined – all of it, including parts makers. Hopefully some of it will soon be making ventilators.
As for overinflated housing prices, especially in places like the greater Toronto area and greater Vancouver, which had average prices in excess of $1 million a few months ago – expect that to crater, and crater hard. Unemployed people, people whose jobs are under threat, can’t and won’t make those mortgage payments, and will never qualify. Expect to see a hard reset on housing prices across the country, but especially in the bubbles. Those bubble have burst, hard.
On the CBC National on March 20 it was noted that sales of basic, long lasting foodstuffs are through the roof, but sales of almost everything else are down to next to nothing.
Manufacturing widgets doesn’t make a lot of sense when no one is buying anything. The entire sector is in collapse, except perhaps toilet paper and food processing.
Last week, 500,000 Canadians applied for Employment Insurance, compared to 27,000 for the same week last year. That is an 18.5x increase, or 18,500 per cent. And we’re just getting started.
Are we going to have a recession? Really?
Everyone is being told to go home. New York and California, two of the most populous states in the union, are under lockdown, and a serious one at that. We are seeing movement restrictions ratcheting up every day. On March 20, Regina determined crowd sizes should be reduced to five. I guess that sucks if you have a family of six or seven.
This is an economic shock much, much worse than 1929. The Dirty Thirties did not shut down all schools or travel. It did not tell everyone to stay home. Neither did the Second World War. In fact, the war dramatically increased economic production, ending the Dirty Thirties.
This is an almost complete shutdown of the economy in nearly every sector save government, medical, medicine production, food production, and transportation of the same.
That’s not a recession. I don’t even know if it is a depression. They might have to come up with a new word for it, and cataclysm might not be strong enough.
How long this is going to last is the key question. Anyone who thinks weeks needs to give their heads a shake. The banks are supposedly looking to defer mortgage payments up to six months, although getting such deferrals is apparently not as easy as one might hope. It’s surely not as easy as it’s been to get a pick slip handed to you. Why six months? Think about that. This is not a few weeks thing.
I’m not being pessimistic here. I’m being realistic. This is what is happening.
The best advice I can give: plant a garden.
Brian Zinchuk is editor of Pipeline News. He can be reached at email@example.com.