Canada’s recent GDP reading for April highlighted the ongoing recovery in pandemic-sensitive services industries as people increasingly made up for experiences delayed or lost over the past two years.
Air travel surged 20 per cent from March while activity in the arts/entertainment/recreation sector rose seven per cent. In both cases, levels remained sharply lower than pre-pandemic levels but are improving. Nationally, hospitality has fully recovered to pre-pandemic levels.
While monthly GDP data is available nationally, provincial estimates are not. That said, key tourism and hospitality metrics point to a strong recovery path. Highlighting the recovery in B.C.’s high-touch services is a full recovery in food services and drinking receipts. April dollar-volume sales rose 5.6 per cent from March. Sales rose 58 per cent year over year owing to pandemic restrictions a year ago and were 14 per cent higher than in February 2020.
In comparison, sales in the rest of Canada were up a more modest 10 per cent. The recovery is most pronounced in full-service establishments, which bore the brunt of pandemic restrictions. Higher and rising prices account for part of this increase, but CPI data points out menu price increases of about 8 per cent over the pandemic and significant increases in real spending.
International travel visits to B.C. are also on the upswing. They rose 43.5 per cent in April, having regained nearly 75 per cent of pre-pandemic inflows. The province took a big hit during the pandemic as travel restrictions and COVID fears turned off international tourism taps. This was, however, offset in large part by strong domestic tourism as Canadian dollars flowed to the coasts. Hotel occupancy rates have recovered as international tourist flows take the reins from domestic tourists. Occupancy rates have largely moved back to pre-pandemic trends with seasonally- adjusted figures pointing to a full recovery. Markets outside Metro Vancouver, specifically Vancouver Island, have led this recovery.
This recovery in client-facing sectors is expected to continue, but significant transitional challenges are already visible and likely to continue both in B.C and nationally.
Despite strong recoveries in activity, employment is well short of pre-pandemic levels by roughly 10 per cent, but not for lack of trying. B.C.’s job vacancy rates for food services are above 12 per cent as employers scramble to find any available bodies for positions. The accommodations sector is faring better at 6.5 per cent, but the provincial average for all industries came in at 6.1 per cent. Pandemic layoffs likely triggered an exodus from the industry that has yet to fully reverse after many individuals retrained and pivoted to more stable sectors. Companies will need to adjust through investments in technology to increase productivity.
Inflation is also a challenge not only for households but also for services sectors. Rising cost pressures will need to be passed on, but as households become pinched by higher prices and interest rates, they may need to re-allocate spending away from entertainment – even with rising wages. This could limit pass-through of costs from the hospitality sector, although high pandemic savings and the desire for households to get back to normal provide some cushion.
Lastly, the gnarled-up airports and announcements of flight cancellations that we have all seen recently will impede some growth momentum.
Bryan Yu is chief economist at Central 1 Credit Union.
