New Normal

Steve Saretsky -

We received a rather horrifying glimpse behind the curtain this past week, as the number of unemployed Canadians reached levels not seen since 1982. Two million jobs evaporated in April, pushing the official unemployment rate to about 13%, nearly triple what it was a few months ago. Even more heartbreaking, these numbers are grossly underreported.

Per Stats Canada, those who were employed but worked zero hours or who lost their job and have simply stopped looking for one, are not counted towards the official unemployment rate. Some estimates suggest the real unemployment rate is around 30% today.

Like in every recession, the economic pain is not dispersed evenly. Employment for workers aged 15-24, also known as Gen Z, dropped by 22%. Generation Zers who are entering into the workforce now face lower lifetime earnings. Historic data shows young people who graduate during a recession earn on average 10% less than cohorts who graduated when the unemployment was lower. This can result in longer periods of student debt and delays in buying a home and starting a family.

Employment among very recent immigrants (five years or less) fell more sharply from February to April (-23.2%) than it did for those born in Canada (-14.0%).

Furthermore, as expected, the recent job losses have been concentrated in the lower and middle class. The number of employees in lower-paying occupations was down 30% year-over-year in April, while mid-wage employment dropped 20%. If you want to get a sense of where foreclosure rates will be highest, look to the suburbs where the middle class congregates.

If you thought the wealth gap was wide before, hold on to your hat. Employment in high-wage occupations only saw a 1.3% reduction in total employment. So not only is the upper class holding on to their jobs, they’ll also be in a unique position to take advantage of discounted asset prices. When all is said and done, the big will get bigger, and the rich will get richer.

I have said this before but I truly believe we are in a bull market for social unrest. According to Stats Canada, 97% of Canadians who have lost their job believe it is only temporary and they will be re-hired. While I admire the positivity, I think it speaks to the naivete of the average Canadian. It will likely take years for all these jobs to return.

The reality is, while restrictions are being lifted, businesses will be hesitant to re-hire. They’ll need confirmation that sales are returning, and when they do return, what will they look like? The two obvious case studies are restaurants and airlines. How many restaurants can survive with a mandated 50% occupancy? What about airlines, who is going to buy the middle seat? Ryanair, Europe’s largest airline carrier, says they can’t make money without selling the middle seat, and insisted they will remain grounded if that’s the case. I’m sure you can extrapolate this across many businesses.

This is the new normal, and it comes loaded with uncertainty until a vaccine is found or herd immunity is achieved. Take South Korea for example. It recently re-opened after being hailed for its pandemic response. Despite recently reopening businesses amid an impressive decline in new coronavirus cases, the South Korean government has just issued a nationwide health advisory for bars and nightclubs to close down for 30 more days after health officials tracked 40 new cases to a single person who attended five nightclubs and bars in the country’s capital city of Seoul. They are now trying to track down nearly 2000 people they believe may have come in contact with this infected individual.

The new normal is certainly daunting, but we must move forward. As difficult as it may seem, there will be many opportunities that come out of this. As always, we will eventually come out the other side, albeit it will look much different. The sooner we accept that, the sooner we can begin rebuilding accordingly.

Three Things I’m Watching:

1. The contrast in Canadian job losses across occupations is staggering. The number of employees in lower-paying occupations was down 30% y/y in April, while mid-wage was down 20%. Employees in high-wage occupations? ONLY DOWN 1.3% y/y


2. Add in people that lost jobs but don’t count as unemployed under survey definitions, and those people employed but not working any hours, implies 30% of the potential labour force are out of work.


3. Change in unemployment rate by sector shows hotel and food services, manufacturing, and construction sectors hit hardest.

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The Saretsky Report. December 2022