The Great Cessation – Why this recession is not like any other

GLC 2020 Mid-Year Capital Market Outlook:

We’re calling the current global situation the ‘Great Cessation’. Many comparisons are being made to the Great Depression of the 1930s and the Great Recession or Global Financial Crisis (GFC) of 2008/2009. And some of the economic data indeed creates a devastating picture where one has to revisit those periods for comparisons. Fortunately, we don’t see either comparison as appropriate.

 North American Employment

Canadian payrolls dropped significantly by -1,994,000 during Q1 due to the Coronavirus outbreak before rising back 290,000 in May 2020. U.S. non-farm payrolls saw a similar pattern of declining by 20,687,000 in April before adding back 2,509,000 in May 2020. Canadian payrolls dropped significantly by -1,994,000 during Q1 due to the Coronavirus outbreak before rising back 290,000 in May 2020. U.S. non-farm payrolls saw a similar pattern of declining by 20,687,000 in April before adding back 2,509,000 in May 2020.

Why not a depression? The world is a very different place today. The mix of services versus agriculture versus manufacturing (or industry) has changed strikingly. However, the biggest difference is the technological infrastructure we’ve built out over the past several decades in terms of the ‘internet of things’. Originally born out of speed and convenience, technology is now providing us with unprecedented and instantaneous e-commerce transactions and work-from-home capabilities. But our social fabric is also vastly different and improved. Our societal institutions (from health care, biotechnology and communications through to central banking initiatives) and government support programs (both old and new, like unemployment insurance, social assistance, public health and the newly initiated government spending programs) are all entirely different and improved. Improved through decades of trial and error and continuous learning – many recently battle-tested during the GFC. 

Why is the ‘Great Cessation’ unlike the GFC or even a typical recession? The economy didn’t start the slowdown. This economic disruption is from an external source (despite strains in the economy, particularly around debt, and we need to be careful there) – not an internal one, and one we’ve never experienced before. But what also makes this time very different is the epicentre of the economic disruption is very much in the services side of the economy. Historically, the economy’s service side has been much less cyclical and more stable, providing ballast in prior recessions. 

One difference that encapsulates how what we’re experiencing is not a typical recession is the fact that unemployment figures are off the charts compared to anything we’ve seen before. Monthly job losses were over one million Canadian workers in March, when these numbers are typically in the tens of thousands. But these job losses are different – many of these workers’ names are still on their lockers and cubicles and all should be receiving some form of income support. These unprecedented negative employment loss numbers have, in turn, created unprecedented large positive numbers on the other side. The magnitude and speed won’t be the same (thawing the economy safely will take longer than it did to ‘flash freeze’ it) but they are still rather substantial positive numbers.

GLC 2020 Mid-Year Capital Market Outlook:

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This commentary represents GLC’s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor.