The Importance of Manufacturing in the Age of COVID-19

 

Ontario’s economy has been hit hard by the Covid-19 pandemic.  Seasonally adjusted monthly employment in Ontario between February 2020 and September 2020 fell 6.3 percent - from 7,551,900 jobs to 7,077,600 jobs.  However, as illustrated in my last post, the employment drop varied across its CMAs.  The worst hit CMAs are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2 and 9.2 percent respectively while at the other end are Guelph and Brantford, which despite early losses have now recovered and in the case of Guelph even seen a small increase.  The question of course is what might account for this variable performance?

One’s first thought is that it is the result of the impact of Covid-19 with cities harder hit by the virus getting a bigger employment wallop.  However, a plot of the percent change in employment levels across Ontario’s 15 largest CMAs from February 2020 to September 2020 (Figure 1) against Covid-19 cases per million population as of mid-October show only a slight relationship between more negative employment growth and higher case counts.  

 

 

 

 

 

 

 

 

 

 Can the effect of Covid-19 on employment depend on a community’s employment structure?  For example, are communities more dependent on occupations in health, social services, education and public administration  (HSEP)– which are mainly broader public sector jobs – more insulated from employment effects of Covid-19?  Figure 2 illustrates this relationship for Ontario’s 15 largest CMAs and again there really is not much of a relationship.  Indeed, outside of Ottawa, Kingston and Thunder Bay have the largest HSEP shares in Ontario at 42 and 37 percent respectively and they are not exactly coasting. And, if one looks at the share of employment in food and accommodation services (not shown) it is also a pretty flat curve.  Indeed, the employment drop across CMAs seems to be impervious to being more service intensive as well as the specific effects of Covid-19. 

 

 

However, there is one more figure that is worth considering. Figure 3 plots the percent of employment in manufacturing against the percentage change in employment. What is interesting here is that the relationship is a positively sloping one – that is, on average, larger employment shares in manufacturing seem to be associated with a smaller employment drop over the February to September period.  It is of course by no means an ironclad relationship.  Kitchener-Cambridge-Waterloo, for example has a manufacturing employment share of 17 percent but nevertheless experienced the largest employment drop of the 15 CMAs at 11 percent. 

 

However, the four CMAs with the largest manufacturing employment share are Windsor (23%), Brantford (19%), Guelph (19%) and Kitchener-Cambridge-Waterloo (17%).  They average 19.4 percent in manufacturing as a share of employment and their average employment drop was 4.5 percent.  Meanwhile, the four cities with the lowest manufacturing employment share are Thunder Bay (6%), Kingston (5%), Sudbury (3%), and Ottawa (2%). They averaged a manufacturing employment share at approximately 4 percent, but an average drop in employment of 7 percent.  What is it about manufacturing that may insulate your economy more from Covid-19 related employment drops over the longer term?

Good question. Obviously, it is easier to shut down things are deemed non-essential such as personal services and perhaps even some broader public sector service activities.  Moreover, some of these sectors are relatively low-paying and the fairly generous CERB payments probably more attractive than returning to work.  These are very labour-intensive activities and when hit hard can generate a lot of employment losses.  On the other hand, manufacturing – especially advanced manufacturing – is already quite capital intensive so it is relatively more difficult to shed employment.  Moreover, once the economy reopened – it was things that were needed be they masks or toilet paper or metal products – and production resumed as quickly as possible. And, manufacturing is much higher paying making staying on the CERB less attractive.

 

The relative robustness of employment in the Covid-19 era as a result of manufacturing intensiveness may have global implications for economic recovery.  Economies around the world have been hit hard with large drops in GDP and employment. However, many countries over the last few decades have seen an evolution of their economies away from goods production and towards services.  The G-7 countries certainly are in this category.  This means countries that are currently more manufacturing intensive will likely do much better in the short to medium term especially if they are producing goods in high demand.

 

This also explains China’s seemingly robust economic recovery.  Given that so much of the world’s manufacturing has relocated to China over the last two decades, they are poised to dominate economic recovery over the next couple of years.  China’s success however may be fragile. First, their longer-term export success requires that other economies recover.  Being a mercantilist means you want to expand your national economy and power by exporting high value-added products and importing low value-added items.  However, having your export markets devastated by Covid-19 is going to be bad for business. Second, most other countries are about to embark on a manufacturing repatriation program as they realize that having a mercantilist and authoritarian country with a monopoly on goods production does place your supply chain at risk and ultimately your national economic welfare.

 

 

Ranking Employment Change in Ontario CMAs During COVID

 The economic impact of Covid-19 has affected output and employment in economies around the world and of course, Ontario is no exception.  However, just as the economic impact varies across countries around the world, so does it vary within countries and within regions.  Seasonally adjusted monthly employment in Ontario between February 2020 and September 2020 has fallen from 7,551,900 jobs to 7,077,600 jobs - a percentage drop in employment of 6.3 percent.  The drop was steepest from February to June - which saw a drop of 13 percent but the rebound since has recovered some but not all of the jobs lost.  

The accompanying figure plots the percentage change in employment level for the province along with its major CMAs during this eight month period of the pandemic for which Statistics Canada has released the seasonally adjusted monthly employment numbers.  The results are interesting. The worst hit CMAs are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2 and 9.2 percent respectively.  At the other extreme are Guelph and Brantford, which have now recovered all of their lost employment and in the case of Guelph seen a small increase.  

There is no apparent pattern to the impact of employment losses based on the impact of  COVID.  Thunder Bay had a very mild impact from Covid-19 in terms of cases and mortality (to date Thunder Bay District is at a total of 114 cases and one death - one of the lowest rates in the province given a population of about 140,000) and yet it had the second highest percentage employment losses.  Toronto and Ottawahave had higher rates incidence and mortality compared to Hamilton and yet are in the middle of the pack in terms of employment losses while Hamilton has done worse than they have  The employment losses really make little sense in terms of the impact of the virus.

 There also seems to be no obvious patterns in terms of location.The hardest hit in terms of employment losses are in northern Ontario, the Golden Horseshoe, central Ontario and eastern Ontario. The smallest hits are in central Ontario, eastern Ontario and southwestern Ontario.  Good and bad performance is spread everywhere which brings us to perhaps factors such as local response to the pandemic by employers and health authorities as well as composition of the local economy.  

Were some communities quicker to implement lock downs and shutdowns and with more stringent rules and slower return to work? The case of the two northern Ontario CMAs may be a case in point given the share share of public sector employment in those cities and yet their poorer employment performance. 

The Kitchener-Waterloo area is exceptionally dependent on students and the businesses servicing those students so maybe that is a factor.  A detailed look at the restaurant, accommodation, hospitality, recreation and cultural/entertainment shares of local employment may also yield insight into why some CMAs did so poorly relative to others given these sectors were exceptionally hard hit.  Of course, as we move into winter one grows concerned that additional impacts on these sectors may have permanent long-term effects.

Until we drill down into more detailed data, the differential impact is a bit of a puzzle.

Thunder Bay's Exciting New Lottery

 

In its ongoing efforts to be innovative and trend setting, the City of Thunder Bay has inaugurated an exciting new lottery – Lotto Nightmare Pipe Dream.   The price of admission is simply being a property owner in the City of Thunder Bay and there is an annual top up fee known as a property tax.  To win?  You have to have a copper pipe leak either in your home plumbing or – if you are a really big winner – in the city water feed line to your property. The prize?  Well, the prizes range from 0$ - not winning - to up to minus $30,000 dollars or more depending on how big a winner you are.  The odds of claiming a prize are unknown but you can win from anywhere in the city though apparently the odds go up if you are lucky enough to live in the Northwood or Red River Wards.

 

Needless to say, the epidemic of leaky pipes in Thunder Bay in the wake of the introduction of sodium hydroxide to mitigate lead in the water has become the lottery from hell. Despite what might be considered to be the comforting biblical allusion of having a Mayor and 12 Councillors gathered in perpetual Monday evening supper time council meetings presiding over our welfare, they continue to remain silent on the issue with no prospect of the good news of salvation in sight.  Yet, based on the Facebook membership numbers in the Thunder Bay Leaky Pipe Club as well as numerous local media stories, nearly 1500 households have been affected.  The demonstration this week by affected residents is evidence of the growing problem.  And, the numbers will likely grow given that it is quite probable that all pipes in the city have probably had decades of life removed from them by the introduction of sodium hydroxide.  So, even homes in newer subdivisions can probably expect to see cases in years to come.

 

The Mayor and Council are refusing to make any public comment.  They are not even saying if they are studying the issue or collecting data or have hired a water/environmental consulting firm to advise them on the issue.  Simply saying absolutely nothing – which is what the Mayor did at his virtual town hall this week - because of potential legal issues is outrageous given that these are our elected representatives.  There needs to be accountability here – not just by the City of Thunder Bay- but also by the province which has mandated municipalities to take action on lead corrosion but oddly enough has not provided for a uniform approach to the problem.  However, the province  has been reported as stating other cities use sodium hydroxide with no pinhole leak issues suggesting they are washing their hands of the matter.  However, at least one of the cities mentioned by the province in the news report– Ottawa – does not seem to use sodium hydroxide but phosphates as its lead corrosion approach.

 

So, It turns out other cities have also had a lead problem – Toronto and Hamilton for example – but both dealt with it by introducing phosphates into the water supply.  In Toronto’s case phosphate was introduced in 2014 and was even endorsed by Toronto Public Health – to my knowledge there was no endorsement by public health officials in Thunder Bay for adding sodium hydroxide. If there was, I would like to see it.  Hamilton approved the use of orthophosphate in 2015.  Phospates apparently have a long history of use in the UK and along with Toronto and Hamilton, Sudbury and Winnipeg also use it also for lead corrosion control purposes. 

 

Where does this leave us?  In Thunder Bay, there are always more questions than answers and the silence of the mayor and council does not help us out at all. Why did Thunder Bay opt for sodium hydroxide rather than phosphates in treating its water for lead corrosion? Was it a cost issue – that is, we opted for a cheaper chemical?  Was it a water composition issue based on the chemical nature of our existing water supply given that it comes from Lake Superior that necessitated using sodium hydroxide rather than phosphates?  Is adding phosphate a solution to our water issues given that there is at least one example of a community in North America – Folsum, California of Folsum Prison Blues fame - adding it to their water to stop pinhole leaks. We need answers and sooner rather than later. Thunder Bay’s new lottery is not all it is cracked up to be.

 

 

Ranking Canada's COVID-19 Performance: It is Not as Pretty as We Like to Think

 

The IMF has released the October 2020 edition of its fiscal monitor and economic indicator numbers for world economies and its World Economic Outlook report titled “A Long and Difficult Ascent”  paints a pretty gruesome picture of the carnage wrought by the COVID-19 pandemic.  While the global economic growth outlook has improved somewhat from its June 2020 report, it is still projected at -4.4 percent and is surrounded by a fair amount of risk. 

 

However, in the end, performance is relative and what is more interesting is how different advanced economies are expected to fare in 2020.   Moreover, what is also of interest is their performance economically and fiscally relative to their pandemic performance – which certainly should be of interest to Canadians.   Polling results have often indicated that Canadians have largely approved of the way that their governments have responded to COVID-19 and an international ranking places Canada near the top of countries whose public thinks their country has handled COVID-19 well.  How justified is this perception by Canadians?

 

In understanding how well Canada has done dealing with COVID-19, one has to start with how Canada ranks in terms of the severity of the disease which in itself can indicate how good a job Canada has done in limiting its spread.  Figures 1 and 2 plot the ranked total number of COVID-19 cases per 1 million population and the deaths from COVID-19 per 1 million people as of October 17th (as taken from Worldometer) for 35 advanced economies as defined by the IMF.  Cases per 1 million ranged from highs of 32,914 and 25,083 for Israel and the United States to lows of 490 and 376 for Korea and New Zealand respectively.  COVID deaths per million people ranged from highs of 893 and 722 for Belgium and Spain (with the USA third at 675) to lows of 5 for both New Zealand and Singapore.  

 

 

 

 

 

Canada ranks 21^st in total cases per million – putting it in the bottom half of incidence severity – but 10^th highest in deaths per million population putting it in the top third.  So, while Canada was not hit as hard by infections compared to many countries, it was among those seeing higher death rates – largely because of its poor handling of the long-term care sector where over 80 percent of the deaths occurred.  While Canada is not the United States or Spain or Belgium in terms of the incidence and mortality of COVID-19, it is not Australia or New Zealand or Korea either. One might argue being an island helps but it did not help Cyprus or Malta that much.

 

How about the economic impact?  Figures 3 to 6 are based on the IMF October 2020 World Economic Outlook Report.  Figure 3 ranks the 35 advanced economies in terms of their projected 2020 real GDP growth rates and here Canada ranks 24 out of 35.  While everyone is going to see their economy shrink, some are going to be hit worse than others. Canada is basically at the top of the bottom third with an anticipated drop in real GDP for 2020 of -7.1 percent.  Overall, it is sandwiched between highs of -1.8 and -1.9 percent for Lithuania and Korea and lows of -10.6 and -12.8 for Italy and Spain. Figure 4 ranks these same countries according to their estimated 2020 unemployment rate and here Canada is an honorary Mediterranean country where at 9.7 percent it is coming 4^th out of 35 countries – behind Greece, Spain and Italy.  And if one looks at the percentage point increase compared to 2019, Canada’s is a 4 percent point increase.  Based on Figure 5, we are the second worse increase of the 35 advanced countries, behind the Americans who are expected to see a 5.2 percent point rise in their unemployment rate. 

 

 

 

 

 

 

 

Of course, one might think that Canada’s somewhat mediocre performance relative to other advanced countries when it comes to the spread of COVID-19 and its mortality rate may simply be due to the fact that Canada has been a cheapskate in terms of its public spending compared to other countries.  And, by extension, perhaps our economic performance has been so much worse than other advanced economies because our federal and provincial governments have been captured by deficit scolds who have foisted restraint upon Canadians.  Well, put those notions to rest.  When the government deficit to GDP ratios for these advanced economies are ranked in Figure 6, it appears that Canada is finally number one in something – the size of its 2020 government deficit relative to GDP.  It is expected in 2020 to have the largest government deficit to GDP ratio of these 35 advanced economies registering at 19.7 percent. 

 

 

 

Once again, Canada has been spending a lot and seemingly getting relatively much less for its money.  True, we have not done as badly as some countries when it comes to the effects of COVID-19 on our population (unless you are a resident of a long-term care home) but our economy appears to have been fairly hard hit even with the many billions of support and assistance that have been funneled into it.  Why Canadians have to date been so charitable towards their federal and provincial governments when it comes to performance during the COVID-19 pandemic is a bit of a puzzle to me. Perhaps we just like to be nice.

In Thunder Bay, A Plague of Plumbing Problems is Not a Municipal Priority

 

It would appear that Thunder Bay City Council is still maintaining its cone of silence regarding the plague of plumbing problems that have afflicted numerous homeowners, not to mention businesses and other institutions in the city.  Residents are growing increasingly frustrated by the silence in light of evidence that hundreds if not thousands of households across the city have been hit by leaks in their indoor copper plumbing and in many cases leaks in their city connection line to the water main.  The expense for some homeowners is running in the tens of thousands of dollars including the hundreds of dollars in fees that the City is charging to shut off and turn back on water at the shutoff valves in order to effect repairs.

 

Thunder Bay has had a long history of water system and supply issues and this is the latest installment in what is going to be a very expensive saga.  Given that these issues have emerged in the wake of the addition of sodium hydroxide to the water supply to combat lead pipes affecting about 8,700 residents in older neighborhoods, the reluctance of the City to comment is understandable.  Correlation is not necessarily causation, but the timing of the leaks in the wake of the sodium hydroxide addition is more than suspicious. On the other hand, there needs to be some public effort made to deal with the problems and the business as usual approach of the City and the accompanying silence of the mayor and councillors is not what our government should be doing.  We do not elect our politicians to ignore us.

 

The Mayor and Council are our elected representatives and their silence in what are now twin pandemics – COVID and the plumbing plague – essentially is leaving many of us on our own to deal with these issues while they pursue business as usual.  Indeed, this week the Mayor apparently lobbied the provincial government on community needs that included: Bombardier, operating funding to offset 2021 COVID-19 costs and lost revenues, infrastructure funding, and funding for additional hires for long-term care and to cover increased costs associated with COVID-19.  Nowhere was there public acknowledgement during this “important opportunity to advocate for our community” of the woes of so many local homeowners and residents.  The public needs to know that their municipal government is looking out for them and it becomes apparent that they do not have our back – unless it is to use it to carry the load of increased taxes to fund their priorities.

 

It would help immensely to know if there is anything we can do as homeowners to preemptively deal with the leaky pipe problem.  Are some neighborhoods affected more than others?  Is it a function of the age of your homes?  What signs should we be on the lookout for to catch the problem early? Are houses near corners more susceptible as some observations suggest?  Is proximity to pumping stations a factor in terms of water pressure or the amount of sodium hydroxide that was released? Instead, we are left with cobbling together evidence from rumor and social media of which the most important contribution to date is a Facebook page under the title of the Thunder Bay Leaky Pipe Club that now has nearly 700 members.

 

In the absence of publicly available evidence from the City in terms of incidence and distribution, we are left to our own devices.  For example, based on the above Facebook Page discussions it would appear that the leaks are occurring all over the city, even in newer subdivisions such as Parkdale.  However, there are particular concentrations in Northwood, River Terrace/Fairbanks, John Street and Valleywood areas. Indeed, a drive down James Street in Northwood a few weeks ago suggested that there was either a lot of landscaping being done or there has been a veritable plague of leaky pipes.  In the River Terrace neighborhood off John Street – a subdivision of about 200 homes – based on the dug-up lawns and the neighborhood stories – there have been 40 homes affected. 

 

That is a 20 percent rate.  There are about 50,000 private households in Thunder Bay which suggests that this problem may eventually affect 10,000 property owners. True, extrapolating from one subdivision of 200 to the entire city is not good science but given the absence of any official information it is the only analysis we can do.  In the absence of numbers from the City as to how much of a problem this is, we are left to wonder who is going to be next and how much it is going to cost.  Not only are most of us working from home during the COVID-19 pandemic, but now we also have to worry that we will be flooded out and hit with a ten-thousand-dollar bill.  As if there were not enough mental health issues in Thunder Bay.

 

So, here it is.  In Thunder Bay right now, based on the homicide rate, you have about a 7 in 100,000 chance of being murdered – in percent terms that is just over one-half of one percent.  if you get COVID-19, you have about a 1 percent chance of dying from it given the numbers to date – 109 cases and 1 death.  However, if you own a home in Thunder Bay, you have a 20 percent change of leaky pipes occurring and a plumbing bill that can range anywhere from a few hundred to many thousands of dollars.  Why is this not a priority?  How the Mayor and Council can still look at themselves in the mirror in the morning is beyond me.