Chart of the Week
Canada will release its first Federal budget in 2-years next week. We will have some thoughts post the release, but our general view is that it is likely to be heavy on spending with a modest risk of changes to the tax code (we believe that tax changes are more likely in 2022 and beyond when the economy is back on firmer footing). RBC Economics expects a sharp rise in Canada’s Federal debt-to-GDP ratio:
It is worth noting that our Debt-to-GDP remains well below that of most countries and well below the levels of the 1990’s. That said – when Provincial debt is included, Canada is approaching or even above 100% government debt-to-GDP, which is worrisome. The general belief amongst economists is that above 100%, each incremental dollar of debt contributes less and less growth.
COVID-19 Update
Worldwide cases have cross 140 million with global fatalities near 3 million. The daily case count continues to rise week over week at ~800k/day vs. ~400k/day in mid-February.
The Good News
The CDC completed its first study of 66 million people in U.S. who have received a full course of vaccinations and found after a waiting period of 2-weeks, ~5,800 subsequently contracted COVID-19 for an infection rate of 0.008%. This is actually well below expectations (keep in mind that even the most effective vaccines are only ~95% effective in preventing COVID). Further, there were no severe reported cases of COVID amongst the 5,800, which is also supportive of the vaccine trials, which found that while the vaccines were not 100% effective in preventing COVID, they were 100% effective in preventing severe outcomes of the virus.
The Bad News
Use of the JNJ vaccine has been suspended in much of the world because of 8 cases in the U.S. of a rare blood clotting disorder. The disorder, which has been fatal in one of the cases, occurred in women between the ages of 18 and 48. While we would not wish to downplay the level of concern here, we would note that more than 7 million doses of the single-dose JNJ vaccine have been administered in the U.S. (for an incidence rate of 0.0001%) and that blood clotting is far more common in those with COVID-19 than it is in those that have received the JNJ vaccine. The thought is that the CDC and FDA are likely to pause the vaccine until data comes in on those that were given the JNJ vaccine prior to its suspension, but have yet to enter the 7-14 day window when the clotting issues arose in the other 8 cases. Our contacts suggest that the likely outcome will be the resumption of the use of the vaccine; however, there may be some limits placed on it (there may be some link to incidences of clotting and those using oral contraceptives).
Perhaps the bigger issue will be trust in the vaccines, which has already been frayed – especially in the U.S. Even though folks are at far greater risk driving to their vaccine appointments than they are actually getting any one of the vaccines, negative headlines tend to drive irrational reactions and the decision to suspend the JNJ vaccine has the potential to drive down vaccine acceptance.
Economic Update
Despite continued high case counts (and lockdowns in Canada), the economic news remains good with both Canada and the U.S. generating very strong jobs growth in March. Canada produced more than 300,000 jobs in March, which would be the equivalent of nearly 3 million jobs in the U.S. if adjusted for population differences. The 300k gain erased about half of the deficit in jobs created by COVID, with the bulk of the gains in hospitality and retail/wholesale employment.
Some of this will undoubtedly be given back in April as the recent shutdowns weigh on job creation, but it speaks to the potential “coiled spring” that the Canadian economy has become when we get back to a more fully reopened economy.