Confused by the economy during the COVID-19 pandemic? Don’t worry, so are the economists
The numbers can be so big, they’re hard to get your head around. The swings are so volatile, you can lose your footing.
And yet, with millions of Canadians struggling through the COVID-19 crisis, many of us want to understand what is going on with the economy.
“My head is spinning, too,” said Benjamin Tal, deputy chief economist at CIBC. “So I don’t blame people, because we’ve never seen anything like this.”
Every week, a flood of new data comes out. This week, we were inundated with the federal government’s fiscal update, GDP figures and job numbers. All trying to shape the story of the economy. Sometimes the numbers contradict each other. Sometimes they give a sort of head-fake and contradict themselves.
The fiscal update that came out on Monday had built all its projections on an average of the forecasts from the big banks. The next morning, Statistics Canada released quarterly GDP numbers that missed the forecast by a staggering seven points. By the end of the week, jobs data came out showing Canadian employers added three times as many jobs as expected.
Every economist is trying to figure out what those numbers are telling us. And they’re not always getting it right.
“Economists have never been more wrong about where the data would come through,” said Frances Donald, chief economist and head of macro strategy at Manulife Investment Management in Toronto.
Most of the time, she said, economists rely on data such as job growth and retail sales numbers to make sense of the situation. The problem is those statistics tell us what was happening months ago.
“This is a daily crisis that requires daily data points,” she said.
To combat that, economists have turned to higher frequency data such as google mobility trends, restaurant reservation tallies and public transit numbers.
But Donald said the bigger issue is the unique, unprecedented nature of this crisis.
“We don’t have a functional precedent for what is happening,” she said.
There may be other moments in the past that share some similarities, but nothing experts can use to model probable outcomes.
Change of perspective
Tal said he understands why more Canadians than usual seem to be following economic updates with bated breath. But he said the best option is to focus less on the details and think of the broader economic themes.
So, while the short term is bad, he said, the medium term looks better.
“We are buying time at this point,” he said, until the virus comes under control.
Yes, the world is headed into a long and dark winter, he said. Yes, COVID-19 cases are rising and government-imposed restrictions could spread. And, yes, households and businesses will need government support and record-low interest rates to provide them a bridge to the second half of next year, he said.
But if you zoom out and look at the longer-term forecasts, the second half of next year shows a lot of promise. Tal said the economic crisis is largely due to the fact that people aren’t spending as much as they normally would.
Some of that is because of government-mandated closures.
But some of it is also a question of confidence.
Even if the movie theatres were open, how many people would pay to sit in close contact with strangers for a two-hour film?
That spending issue is a large source of the hope for 2021. Tal calculates that Canadian households and businesses are sitting on $170 billion in savings. And once the virus comes under control, he predicts that money will spill back into the economy.
“I see this unleashing of potential demand in the economy,” he said. “Most of it will be in the services sector. And that will benefit employment for people that are struggling. It’s just a question of time.”
So, in the interim, he recommends not getting too caught up in the minutiae of the daily economic data.
That’s advice financial markets seem to be following. As COVID-19 case counts soar and government-imposed restrictions spread, the major stock market indexes are all climbing. Donald said markets seem to be looking past the short- and medium-term unknowns and banking on a solid return next year.
WATCH | The National’s report on the fall economic update:
She said the markets don’t seem to be too caught up in the daily barrage of economic information.
“The markets are thinking ahead to where we are going to be in 6, 12, 48 months,” she said. “Not where we are at this very moment.”
Besides, she said, one of the best indicators available is to just look around and see how people around you are acting. Are people nervous and scared? Are they staying home or are they out shopping? The data will catch up to our behaviour eventually.
“You don’t need a PhD in economics to look around at your friends and family and get a sense of what their behaviour is,” she said. “We don’t need numbers and releases, we just need to look out our front doors.”