Taking stock of Quebec’s economy
It’s clear that the spring lockdown led to an unprecedented downturn in the economy. Nevertheless, the July numbers indicated that economic activity had already returned to 95% of pre-pandemic levels1. Still, there are significant disparities among industries. Some have recovered completely, while others are having a harder time bouncing back. As we now know, social distancing represents a considerable challenge for certain sectors, including accommodation and food services, culture and recreation and passenger transportation.
The SME Confidence Index still hasn’t returned to where it was before the pandemic. This new reality brings a great deal of uncertainty, and there’s still a long way to go before things get back to normal.
Yes, the economy is in recovery mode. But its rate of improvement bodes well for the future.
What about the labour force?
The unemployment rate is a key indicator for assessing the labour situation. Compared to February’s levels of just 4.5% in Quebec and 5.5% in Ontario, the unemployment rate reached 7.7% and 9.6% respectively in October after peaking at 17% in April (Quebec) and 13.6% in May (Ontario)2. The global indicator is good at the moment, but it’s important to monitor each sector independently to get a more accurate picture of the situation.
Prior to the pandemic, employment was at an all-time high. We had already been dealing with labour shortages for a number of years, particularly in construction and agriculture. Last summer, for instance, farmers had to enlist the public’s help to avoid harvest losses because they didn’t have enough workers to pick berries. Theoretically, with the wrap-up of government programs like the CERB and the CESB, more people will be available to work during the same period next year. Also, if the pandemic is sufficiently under control, we can expect at least a partial reopening of the borders. That would allow us to bring back foreign workers whose contribution is so vital to our agriculture sector.
Across all sectors combined, it’s estimated that by the time the initial government measures expired, more than 97% of the jobs lost after February 2020 had been recovered2. Some sectors were obviously hit harder, like accommodation and food services and culture and recreation, while others like educational services, wholesale trade and retail trade have flourished. The reopening of non-essential businesses in the spring led to a huge jump in employment, but business closures in some regions led to another drop in October. There will be some challenging months ahead, but the situation is expected to improve once businesses reopen across the board.
Impact of government programs
A certain part of the workforce profited from the initial government support programs, leaving many sectors struggling with major staffing shortages.
This summer, we saw a direct impact on regular workers and students. But the two benefit programs expired in September, and subsequent measures provide less generous—and above all, more targeted—support. To some extent, we can expect to see an increase in workforce availability in the coming months, making it easier to hire new employees. And since the government programs for workers are now more targeted, it will be easier to rely on the unemployment rate to assess workforce availability in all sectors.
Recent announcements from the federal and provincial governments highlight significant business support measures1. In Quebec, at the provincial level alone, $477 million has been announced to stimulate economic growth, along with $300 million to support the green economy and $459 million to go directly to workforce training. And, if you work in the industrial or energy sector, for example, there’s a good chance you could benefit from the significant funds earmarked by Quebec as part of its Plan for a Green Economy to drive innovation in your company.
The raw materials issue
From the primary to the tertiary sector, the health of many Quebec businesses depends on raw materials. In the last few months, a number of those businesses have been impacted by higher prices for metals and lumber.
Let’s look at an example. Sawmills, which were closed during the lockdown, subsequently saw an explosion in demand in the construction sector. With people renovating their homes instead of travelling, the increase in demand drove prices up. However, they’re gradually starting to come back down to more normal levels. Despite the pandemic, housing starts really took off in the spring. Since the beginning of 2020, they’re up 8.5% in Quebec and 15.5% in Ontario3.
If the supply of raw materials is essential to your business, it’s worthwhile to check prices more often, even daily. That could help you manage your cash flow better by planning your material orders differently based on anticipated demand and by factoring in potential delays. You could also protect yourself and minimize your losses by putting clauses in your contracts to provide for price adjustments based on market fluctuation.
Price increases are beyond your control, but there are steps you can take to reduce the impact on your business.
A global economy that’s going more local
Despite its improvements, the global economy is still sluggish and will be that way as long as lockdowns persist. In the last 20 years, Quebec has diversified its export markets considerably and become less dependent on international export. This change mitigates the impact of weakened global trade on the province’s businesses.
Today, nearly 40% of Quebec’s exports are sold to the other Canadian provinces1, and the trade dependence on the US is decreasing every year in favour of other markets like Europe and Asia. It’s still important to have international agreements like the Comprehensive Economic and Trade Agreement between Canada and the European Union, the free trade agreements between Canada and some of the Agreement for Trans-Pacific Partnership countries and the recently introduced Canada-US-Mexico Agreement. These agreements could provide some attractive opportunities once the global economy makes a sustainable recovery.
It’s important to monitor the global trade index closely and consider long-term recovery solutions once the economy is stronger. Our domestic trade is quite robust and more predictable than our foreign trade. With this in mind, it’s a good idea to monitor the economic indicators for the other provinces so you can stay on top of the situation.
What about consumer habits?
Are consumer habits affected by a weakened job market like we saw in the spring?
Not surprisingly, at the height of the crisis, retail sales plummeted drastically. However, this dramatic drop in spending was only temporary, to the extent that retail sales are actually higher now than before the pandemic2. Once again, some sectors like food services and construction saw significant improvement, while others, like the clothing industry, saw little or no improvement.
While households reduced their spending, they also increased their savings like never before. We can expect this trend to continue until the climate of uncertainty subsides. On the upside, consumers will likely be eager to use these savings once the purchasing environment is more favourable … so be prepared!
The surge in online shopping
Online transactions have exploded during the pandemic. E commerce is not a recent phenomenon, but consumers are now more comfortable shopping online. Shoppers are expected to rely heavily on e-commerce this holiday season, and businesses that have done a good job of developing this channel will benefit the most.
Indicators to disregard
Some of the indicators we monitor in normal times aren’t as useful right now. It’s best to put aside interest rates, which are going to stay low and stable, as well as oil prices and stock market activity. While the financial markets generally do a good job of predicting economic recoveries, stock market activity won’t be the biggest indicator that we’re emerging from the crisis.
We also need to look at the Consumer Confidence Index. Although it’s fairly low, the index has more to do with public health concerns than the economy, which is actually improving.
Not surprisingly, despite all the activity on our economic radar, the most important indicator is still the development and wide-scale distribution of an effective vaccine.
Economic indicators to keep an eye on
In short, to help you continue moving your business forward, there are 3 indicators that are especially important to watch: the unemployment rate, which is the indicator updated most rapidly, the global trade index, which factors in all trade, and the real GDP. Every sector is different, but if you look at all of these indicators and you monitor changes in consumer habits and the unemployment rate, you’ll get a good idea of the overall situation. You’ll also get a better idea of what lies ahead so you can adapt your business strategy accordingly.
1 Institut de la statistique du Québec
2 Statistics Canada