Hello. My name is Eric Lascelles. I’m the Chief Economist for RBC Global Asset Management and here to share with you our latest video #MacroMemo.

And of course COVID-19 continues to feature centrally in all of that, and so why don’t I begin there. We are now in a situation in which there have now been almost 30 million cumulative cases over the past six or so months globally. Though I will say the global infection numbers are sitting roughly flat right now. We’re a little nervous they’re starting to edge higher, but roughly flat, and actually a bit down from a few months ago. But worth watching very closely.

The fatality figures continue to run notably below prior peaks, and so that’s been a very welcome development on the basis of a younger cohort getting infected, and better medicines, and better medical care, and this sort of thing. When we look at where the new epicentre for the virus is, arguably it has shifted yet again. And so India now reporting easily the most new daily infections. In fact, close to 100,000 per day. Now that’s a huge number, though equally the Indian population is even bigger and so that puts it into some perspective, but still considerable ongoing growth in India. And Latin-American countries also disproportionally challenged within the emerging market space right now.

When we turn to the U.S., which was the prior hotbed for COVID-19, still certainly very present there but we can say the number of daily infections is notably off where it was in late July and tentatively continuing to go down, though I would say less enthusiastically than in prior weeks. But we’ll take even flat at this point in time, particularly since the U.S. has been reopening a number of schools and you would think there would be this new vector for transmission, and so if they can prevent a surge on that basis that would ultimately be quite a positive thing.

Europe continuing to go through its own second wave. And perhaps Spain, the most adversely affected of the countries, is starting to peak here. So we’re most hopeful that it is since it has made a fairly aggressive effort now to control the virus, but I can’t say the same in some other countries. France still very much exploding higher for instance, and so some serious challenges in that space.

And then looking at Canada, the Canadian numbers are very clearly edging higher now. We’ve been flagging that for the better part of a month at this point in time and we’re seeing governments start to respond. British Columbia has reversed a few measures. Ontario has paused its further opening plans.

But to my eye there probably needs to be more done, and more done across just about the full set of provinces, since the four biggest provinces in Canada are all suffering a rising set of daily infections. And so something does need to be done there, or we will continue to see those infections rising.

Pivoting from the virus itself to the economic backdrop around the virus, we can say that the real-time economic data that we continue to track, mostly getting better still. Not nearly at the enthusiastic rate of April through July, but equally not the stagnation that the U.S., in particular, suffered in July and in early August. And so there is some sort of recovery under way.

And some of the indicators are more fun to track than others. We can say for instance that looking at U.S. movie ticket sales, revenue has surged there. It was running less than a million dollars a week for the longest time. In fact it was running in the thousands of dollars for quite a while and then into the low million. And now up to $20 million in a week. And so significant numbers, but I should emphasize still more than tenfold below the prior norm. So the theatre industry coming back to some extent. I can think of at least one big movie released recently, but ultimately still very much a limited sector.

And when we look at real-time data in Canada, we can say that Canadian credit and debit card spending continues to look higher than it was a year ago, which remains a pleasant surprise. And I should say motivated in significant part by some fairly generous government cheques. We don’t think spending would be this enthusiastic without that, particularly not with a 10% unemployment rate.

And I can say that in Canada, small- and medium-sized businesses continue to report that they are incrementally reopening. And not all the way there, but the process continues, and the process is now continuing at a slower pace than it previously was.

We do have the luxury of looking at traditional economic indicators as well. And when we look at those, they’re largely confirming what the real-time indicators claimed a few months ago, which is there’s been a significant recovery.

In the U.S. context, recovery has probably now reclaimed maybe up to 60% of what was initially lost. In Canada, we think actually slightly more, believe it or not. Based on the job numbers and a few other indicators. And so a significant recovery, but nevertheless the remaining half, or the remaining 40%, is likely to take almost an order of magnitude longer to get back than the first half, which came together in the span of about three months. We think the rest is about a two-year journey in comparison.

We’ve been spending time looking at housing markets. And North American housing markets, really astonishingly strong if I’m being honest. The numbers just jump off the page. We’ve seen U.S. new home sales up 26% from February. Existing home sales up 15% from February. Canadian housing starts up about 25% from February. Canadian existing home sales up about 17% from February. These are seasonally adjusted numbers, in case you’re thinking that not much happens on the housing front in February, that’s not why it’s higher today than in February. And so there is real strength here.

And in the U.S. we’ve even seen the home ownership rate go up to an almost extraordinary degree. It’s gone from 65% of households owning a home to 68%, which is frankly almost hard to fathom in the span of just a few months. And so for the moment, a source of strength. We see it just about completely across the board.

I will say, I’m still a bit nervous about this, to the extent that we know that unemployment rates are high. There are people who will be struggling to make mortgage payments and others who will be in no position to buy a house. And so it’s hard to fathom the demand remaining this strong indefinitely.

We also know that immigration remains almost at zero. And so that’s historically where the demand for new homes comes from at the end of the day. And so we suspect housing will have to slow at some point in time. There are some risks down the line on that front, but just not in evidence at all right now.

It’s been a remarkable boom and certainly we can appreciate that people perhaps prefer low-density dwellings over condos or apartments right now. And people maybe don’t want roommates, to the extent they once had roommates, but we really can’t even quite make that show up in the data. Apartment vacancy rates are down for instance, not up, as one example refuting that theory.

Let’s move from there just into the fiscal space for a moment. And so I think it’s broadly appreciated there’s been a huge amount of stimulus delivered out there by governments and giant deficits along the way. Of course there are implications to all of that and so one would be giant deficits mean giant public debt down the road.

And so projections are for quite significant leaps and for records to be set in terms of not just the amount of public debt, but even the ratio of public debt to GDP. I will say one of the important saving graces here though is that interest rates are set to remain likely quite low.

And so for instance, it was quite astonishing to work through the Congressional Budget Office’s latest decade-ahead projections in the U.S.. And so they certainly acknowledge the big deficits today. But they actually didn’t have to upgrade their expected deficit at all between 2021 and 2030, at least not cumulatively.

Because as much as they acknowledge the economy might be weaker than otherwise, deficits might be naturally larger than otherwise for that reason, they figure they can save $2 trillion or more on lower interest payments than they’d previously assumed. And so don’t underestimate that, the cost of servicing debt. It will go up over time, simply because the debt itself is going up, but it’s not set to break records based on the pretty credible projections that we’ve seen.

Let’s be aware of course as well that even as stimulus and deficits persist into 2021, actually it ceases to be much of an economic boost. And so it’s this strange situation in which you can talk about big deficits in ongoing government programs, but technically a drag because 2020 had such enormous amounts of stimulus delivered. 2021 is set to have less. It’s that less that actually determines whether you get more growth or less growth than usual. And so it’s actually a big economic headwind for 2021 that’s going to have to be grappled with.

I want to make a quick comment about inflation just in the sense that inflation has been low. We’ve said repeatedly we think it could be higher later. Later not so much meaning this year or next year, but perhaps in subsequent years, just given a greater tolerance for inflation by central banks, given high public debt loads, given big central bank balance sheets, given onshoring of supply chains as well. So we think it could be somewhat higher later, though unlikely to be overly problematically higher.

But what’s interesting is we can see inflation already, at least partially reviving. And so the real-time measures we track point quite clearly to less low inflation than a few months ago. The traditional measures we’re looking at also are at least a little bit higher.

And we’ve been tracking money supply statistics too. And I know some people have gotten quite concerned about this. You can see U.S. M2 money supply growth is running 25% year over year right now. In Canada and other developed countries, it’s more like 10 to 15% growth, but it’s big numbers. And so there are concerns out there that maybe we could get big inflation as a result. That’s not impossible and I would certainly concede that part of this money supply growth surge probably is linked to additional quantitative easing, but keep in mind, so long as commercial banks don’t have trillions of dollars of new customers to lend to, most of that money doesn’t trickle fully out into the economy.

And similarly I think the bigger reason money supply growth is up is actually more because of a preference for liquidity. When people get scared during a crisis, they sell fixed or illiquid assets. They put a lot of money perhaps into their chequing account. That’s what makes the money supply growth look so big, and it’s not actually all that inherently inflationary. So I don’t think there’s a sudden surge coming, but I could see there being a bit more later.

Let me talk first about schools rather for a moment. And so schools reopening in the Northern hemisphere. And I really can’t make a definitive comment on whether that’s good or bad. It depends on the intensity of the virus in the particular region, it depends on the sort of safety protocols and distancing measures that are available within the school context. And so it really does depend quite significantly.

I will say that the stakes are fairly high, not just in terms of the risk of infection coming from this new vector, but equally because of course if children do go to school, their parents can work more and the children can learn more too. In fact there has been research recently from the U.S. arguing that the average U.S. schoolchild learned significantly less, 50% less math than usual so far in 2020, 30% less reading, and so there were significant academic consequences to the virtual learning that took place in the spring. And I do want to just emphasize the idea that cases of COVID appearing in schools will not be a sign of failure of a schooling model. It’s frankly an inevitability just in the sense that, using Canada as an example, around 60 children get COVID-19 every day right now, unrelated to schools. And to the extent most of those are schoolchildren, you could easily imagine then there being maybe 30 schools a day suddenly discovering that a schoolchild has COVID-19 who has recently been attending the school.

And so it won’t be a surprise at all if schools need to occasionally shut down for a period of time or perhaps the bubbles of classes within a school need to shut down for some time. And so again, I think we need to recognize that it’s an inevitability there will be schools shutting down for a period perhaps of a few weeks or at least classes shutting down. And that’s just a process we’re all going to have to go through over the next year. And it’s an inevitable one, even if there was no transmission within schools at all.

And then just to maybe conclude on a more positive note, vaccine progress seemingly continuing. The various betting markets we track remain fairly optimistic that something significant is coming along by the first quarter in significant numbers of dosages.

We hear CEOs of vaccine manufacturers talking repeatedly about November as being quite a plausible time, at least for emergency usage of vaccines. And so we’re reasonably optimistic. We think 2021 is a year in which at least by the end of the year, a large fraction of the world may have access to a vaccine and perhaps life gets to return significantly toward normal.

I would warn much depends on how effective the vaccines are and the uptake rate, and this sort of math is crucial. And in the end it might be that we need to keep a few social distancing measures in place just because herd immunity might not quite be achieved based on the tricky math of those two things interplaying with one another. But it should nevertheless leave us in a considerably better place.

And with that, I’ll bid you adieu and say thanks so much for your time. And I wish you well and hope you choose to tune in again next time.