A running start on the long road to recovery

Developments over the past month suggest activity is rebounding strongly as restrictions are lifted. The CFIB measure of small business confidence has now made up most of its post-virus slump, and the Ivey all-economy PMI also rose strongly in May. While consumer confidence edged down last month, the weekly measure started to rise again this month. Admittedly, all three continue to imply that output or consumption continues to fall. But the surveys appear to have understated the plunge in GDP at the height of the lockdown in April, so we suspect the direction of travel rather than the level of the surveys is now the key thing to watch. There have been encouraging signs elsewhere as well, with the Labour Force Survey revealing an unexpected rise in employment last month and Stats Can telling us that their preliminary data point to a jump in retail sales of 18% m/m in May. The road to recovery is still a long one, with business investment unlikely to rebound as quickly as consumption and the timeliest data suggesting that exports continue to struggle. Moreover, reports that the US will reimpose aluminum tariffs on Canada show that trade risks could re-emerge. Nevertheless, the latest indicators are encouraging and suggest that the initial recovery from the lockdown will be stronger than we first assumed.