November 26, 2021

Quarterly Newsletter - Fall 2021

Where have all the workers gone?

Remember when we were all afraid of losing our jobs due to computerization, automation and robotization? Or when we were afraid of losing our jobs because manufacturing was being transferred to Asia? Several years later, we're now dealing with a different issue… a labour shortage! But what has caused this situation? The CERB and the CRB? Perhaps to some extent, but the problem is much bigger than that. This situation could largely be explained by the structural imbalance between the people just entering the workforce and the Baby Boomers and Gen Xers (1965 to 1985) taking early retirement.

The end of public support programs for workers, vaccination and the re-opening of sectors under lockdown should help bring workers back onto the labour market. However, this expected return of unemployed workers will not be enough to bring the labour market back into balance. Will robots be coming to our rescue? We're going to be needing immigration, workforce training and modernization programs to fill all the vacant positions out there. We'll also have to set up government programs to encourage workers to retire gradually and work longer. 

Supply chains

The pandemic has brought to light the fragile nature of a global supply system based on just-in-time delivery, relocation of production to countries with lower labour costs, dependence on transport chains, and an abundance of cheap labour. Strong demand is causing transport problems (containers, ships, trucks) as well as a shortage of electronic components and other commodities. To remedy this situation, governments are investing in infrastructure, and some companies are bringing their production operations back home.

And how is the economy faring in all this?

Despite everything, the economic cycle is in good shape. The pace of growth will slow down in the next few quarters, but a recession would be surprising. Given the $10,000 billion in U.S. bank accounts, U.S. households are a force to be reckoned with for the future. This situation alone has the potential to keep the cycle alive and well in the short and medium terms. By reducing the degree of monetary easing in the economy over the next few months, the central banks will hold back demand. In the short term, corporate profits will continue to grow, but at a more moderate pace. For 2022, we expect 4.1% growth in GDP in Canada and a 3.8% growth in the U.S.

Inflation will remain high in the short term and should gradually decline in 2022. Our economists are forecasting 2 quarterly key rate increases of 25 bp in a row in Canada and the U.S. in the third and fourth quarters of 2022. These rate increases will be needed to control inflation and demand for goods and services. We are therefore optimistic for the coming year and for the much-awaited return to the pre-pandemic normal.