Focus
June 10, 2022 | 12:32
What Really Changed in the Pandemic?
Economics
Economics
Economics
Fixed Income Strategy
Economics
Economics
Economics
Economics
Economics
Economics
Economics
Fixed Income Strategy
Economics
Economics
Economics
Economics
What Really Changed in the Pandemic? |
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For more than two years, COVID-19 changed the way we work, learn, shop and play. With the worst of the crisis now seemingly behind us, we take a look at what changes are likely to last. Two areas that probably have changed for good: |
Remote work: Office life won’t be quite the same after the pandemic, with commuting five days a week likely a thing of the past for most workers. Surveys suggest employees prefer a hybrid approach, splitting time between home (to save on commuting costs and for flexibility) and the office (to collaborate and socialize with colleagues). After some initial hesitation, most companies are going with the flow, partly to appease workers in the currently competitive job market, but also to save on office space. U.S. data suggest office occupancy is still less than half of pre-pandemic levels and progress has slowed to a crawl despite easing restrictions (Chart 1). Continued health concerns might explain part of the low take-up rate, but it’s also likely that office occupancy will never exceed even two-thirds of pre-virus levels. This permanent shift has implications for building owners and lenders, businesses serving commuters, municipal government planners, and real estate markets. Business travel: As client meetings were pushed online, businesses realized significant cost savings. Manager surveys suggest that corporate travel is unlikely to fully return to former levels due to travel savings and carbon emission pledges. While conferences and trade shows will still be held, travel will be more selective, with the choice between in-person, virtual and hybrid meetings dependent on client preferences and the need to establish relationships. |
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Two areas that probably haven’t changed much: Online shopping: The pandemic sparked a rush toward online shopping during mandated restrictions. This spurred talk of a permanent shift as more non-users became comfortable placing online orders. But a funny thing happened as the restrictions eased: most people went back to the old way of doing things. In fact, after an initial spike higher, the U.S. share of online retail sales has largely returned to its former (rising) trend line (Chart 2). A similar situation exists in Canada. Yes, people are buying more stuff online each year, but the pandemic doesn’t appear to have accelerated the pre-existing trend. |
Participation rate: Despite media reports of a ‘Great Resignation’, evidence of such is lacking. The prime working-age participation rate in the U.S. and Canada (as well as in most developed countries) has returned to or surpassed pre-virus levels (Chart 3). Data on older age cohorts also don’t confirm a shift toward early retirement. Although a record number of workers are quitting, the majority are simply switching jobs, not hitting the links. And where the jury is still out: IT investment: As activity rushed online in the early days of the pandemic, companies ramped up spending on information technologies to meet demand. In the U.S., real business spending on computing equipment and software shot up 34% and 27%, respectively, from late 2019 to early 2022 (Chart 4). U.S. robot orders rose by a record 40% y/y in the first quarter. While spending on IT gear in Canada has been more subdued, it too has sped up. Part of the higher spending addressed worker shortages. However, it likely also is aimed at improving operational efficiencies. The pandemic likely taught companies that automation is better suited than humans to address future pandemics and possibly other shocks. Robots don’t get sick or have childcare needs. Labour Productivity: Alas, the extra spending on tech gear hasn’t translated into better productivity. If anything, output per hour has weakened, especially in Canada where it is down in seven straight quarters after surging early in the pandemic (Chart 5). The surprising result might simply reflect a delayed response to the additional spending on technology. Or, productivity gains may have been eroded by supply-chain snarls, the hiring of lower-skilled workers to help fill record job vacancies, and uncertainty arising from pandemic restrictions. It’s also possible that the surge in tech spending only helped to lower costs rather than increase output. Productivity might still improve in time. Reshoring: With the pandemic and now the war in Ukraine disrupting global supply chains, reshoring discussion is front and centre once again. However, despite the talk, very little of it has translated into action—at least according to the data. Manufacturing imports as a share of gross output in the U.S. have actually trended higher, and the story is similar in Canada, though the latter is much more heavily reliant on imports (Chart 6). Contrary to reshoring claims, manufacturing import intensity actually rose during the pandemic, though this also partly reflects a shift toward goods consumption. The war in Ukraine has also led to talk of “friend-shoring” supply chains to insulate production in like-minded nations from geopolitical tensions. It may be too early, but recent evidence suggests that both Canada and the U.S. have a long way to go. The U.S. has reallocated some of its manufacturing imports away from China in recent years, but much of that occurred after the imposition of tariffs in 2017 (Chart 7). The bulk of the shift has been within Asia rather than closer to home. Similarly, Canada has mostly reallocated imports away from the U.S. and toward Asia, including China. There is one sub-sector that is walking the walk on reshoring: computers and electronics. U.S. real construction spending in this sector has shot up since mid-2021 as global microchip shortages have highlighted the value of adding fabrication capacity stateside (Chart 8). Intel is looking to invest up to US$100 billion in new chip fabrication plants in Ohio. Inventory management: Much has been said about a shift from ‘just in time’ to ‘just in case’ inventory management, which could hamper potential growth by creating supply-chain redundancies. However, real business inventories in the U.S. remain well below pre-pandemic levels. Yes, there is some evidence that more companies are padding orders and over-stocking shelves to address supply-chain disruptions and delivery delays. But, this might reflect disruptions stemming from pandemic restrictions, the Ukraine war, and China’s lockdowns, so it may prove temporary. Moreover, even before the pandemic companies were bulking up on supplies to address rising tariffs. Bottom Line: Workers will likely continue to spend less time in the office and on business trips long after the pandemic ends. By contrast, the virus does not appear to have sped up online commerce or early retirement. To date, it’s unclear whether it will lead to permanent changes in reshoring, inventory management, and productivity, or alter the economy’s long-run growth rate. |
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