500,000 Jobless Claims Send Canada’s Labor Market Into Freefall

(Bloomberg) -- Prime Minister Justin Trudeau said half a million Canadians, or about 2.5% of the labor force, have applied for jobless claims this week, smashing previous records and suggesting the nation is already in a deep recession.

Speaking outside his residence in Ottawa, Trudeau said Service Canada has received more than 500,000 applications this week, 20 times the number recorded in the same week a year ago. The Minister of Families, Children and Social Development’s office confirmed Trudeau was referring to applications for unemployment insurance.

The speed of the meltdown in the labor market has no precedent. The largest number of jobless claims for a whole month was 499,200 in 1957, according to Statistics Canada data.

“This is of course an unprecedented situation and it is putting a lot of pressure on our system but we’re on it,” Trudeau told reporters Friday at Rideau Cottage, where he is governing from home after his wife tested positive for coronavirus.

The number highlights just how quickly economic activity has come to a halt as Canadians stay home and governments tell businesses to close to control the spread of the coronavirus pandemic. It also indicates the depth of the contraction may be worse than even the most pessimistic analysts had feared.

‘Depression of 2020’

“There are going to be large contractions in economic activity, that’s unavoidable when you’re shutting down portions of the economy,” said Beata Caranci, chief economist at Toronto Dominion Bank. “What you’re ultimately hoping for is you don’t get the negative dynamic on duration.”

In Canada’s case, the economy is facing a double whammy of the pandemic and tanking oil prices, devastating an energy sector that still accounts for about one-tenth of output.

“This is going to be the depression of 2020,” said David Rosenberg, founder of Rosenberg Research and Associates Inc.

The extent of the slowdown also suggests policy makers will need to have a bigger response to keep companies afloat and avoid a long downturn, Rosenberg said. Trudeau’s government has announced an aid package worth C$82 billion ($57 billion), which is mostly temporary tax deferrals. The Bank of Canada has cut its policy rate by a full percentage point, but still has its benchmark above other countries.

“It’s one thing to have everybody filing for claims but if they have no job to go back to, it’s going to compound things,” he said.

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