Introduction
In 2020, the first year of the COVID-19
pandemic, several service industries
in Canada suffered large financial
setbacks despite government support programs. The pandemic led to many changes
in the Canadian economy, including remote work and new ways of reaching
customers and producing services. Using administrative data, such as goods and
services tax (GST)Note
revenue, this study assesses how the recovery began to unfold in selected
service industries in 2021, even
as supply chain disruptions, labour shortages, skill gaps and inflationary
pressures intensified.
While the strongest revenue
growth in 2021 was observed in accommodation services, that industry remained one
of those furthest from a full recovery. Similar to prior years, informatics
services such as software publishers and data processing, hosting and related
services maintained solid revenue growth in 2021 as the economy continued its
digital and online transformation. Other service industries benefited from economic
conditions and recorded appreciable revenue growth as well (see Chart 1).
Data table for Chart 1
| 2021 | 2020 | |
|---|---|---|
| percent change | ||
| Software publishers | 8.0 | 8.5 |
| Data processing, hosting and related services | 15.7 | 17.6 |
| Accounting, tax preparation, bookkeeping and payroll services | 5.9 | 2.6 |
| Engineering services | 2.6 | 0.8 |
| Management, scientific and technical consulting services | 10.9 | -2.4 |
| Architectural services | 15.4 | -3.7 |
| Employment services | 10.2 | -9.2 |
| Specialized design services | 6.7 | -9.8 |
| Commercial and industrial machinery and equipment rental and leasing | 19.5 | -15.5 |
| Consumer goods and general rental | 11.3 | -13.6 |
| Accommodation services | 22.9 | -44.8 |
| Travel arrangement and reservation services | -48.8 | -56.9 |
Assessing the state of the recovery
While the bounce back is
occurring at varying speeds and is still far from complete in some sectors, the
2021 revenue of most professional and administrative services industries
analyzed in this study surpassed pre-pandemic levels (see
Chart 2).
Data table for Chart 2
| Percent change | |
|---|---|
| Data processing, hosting and related services | 36.1 |
| Software publishers | 17.2 |
| Architectural services | 11.1 |
| Accounting, tax preparation, bookkeeping and payroll services | 8.7 |
| Management, scientific and technical consulting services | 8.2 |
| Engineering services | 3.4 |
| Commercial and industrial machinery and equipment rental and leasing | 1.0 |
| Employment services | 0.1 |
| Specialized design services | -3.8 |
| Consumer goods and general rental | -3.8 |
| Accommodation services | -32.2 |
| Travel arrangement and reservation services | -77.9 |
Tourism-related services continued
to lag, as did a few other service industries that rely on face-to-face
interactions, such as specialized design services, and consumer goods and
general rental. In general, an accommodative monetary policy, a resurgence of
business non-residential investment and an economy-wide recovery helped
selected service industries surpass their pre-pandemic revenue levels in 2021. The
following sections of the study will elaborate on factors that spurred the recovery.
Professional business services: Thriving in
uncertain times
Unfazed by pandemic challenges, engineering services press forward
Engineering services did not
suffer any declines during the pandemic. Despite some disruptions caused by
labour shortages, supply chain issues and worker absenteeism, a few major
multi-year energy-related projects that started work in recent years in Alberta
and British Columbia created positive momentum for the industry. In 2021, along
with these ongoing major projects, growing investment in public infrastructureNote
and major projects in clean energyNote
put the wind in the sails of engineering services. Revenue is estimated to have
increased 0.8% in 2020 and 2.6% in 2021.
Housing frenzy boosts architectural services
In 2021, residential construction
made its largest contribution to gross domestic product since comparable data
became available in 1962.Note
Low interest rates and the need to accommodate teleworking boosted housing
starts by 24.5% to 271,198 units in 2021 (see Chart 3), with both single and
multiple dwellings in high demandNote .
Data table for Chart 3
| Total units | |
|---|---|
| 2009 | 149,081 |
| 2010 | 189,930 |
| 2011 | 193,950 |
| 2012 | 214,827 |
| 2013 | 187,923 |
| 2014 | 189,329 |
| 2015 | 195,535 |
| 2016 | 197,916 |
| 2017 | 219,763 |
| 2018 | 212,843 |
| 2019 | 208,685 |
| 2020 | 217,802 |
| 2021 | 271,198 |
In addition, business and public
investment in non-residential buildings posted strong growth, further strengthening
the demand for architectural servicesNote
(see Chart 4). Revenue for architectural services is expected to have risen 15.4%
in 2021, surpassing pre-pandemic levels by more than 1/10.
Data table for Chart 4
| 2020 | 2021 | |
|---|---|---|
| percent | ||
| Total business investment | -2.3 | 17.3 |
| Construction business investment | 1.0 | 22.8 |
| Total business residential investment | 9.4 | 31.9 |
| Total business non-residential investment | -9.7 | 8.6 |
| Total public investment | 7.8 | 13.9 |
Specialized design services benefit from retrofitting of physical spaces
and improving economic conditions
The pandemic disrupted many
facets of how businesses and the population in general interact in physical
spaces. Specialized design services, mainly interior design services, helped
people connect and improve virtual and physical interactions and experiences,
in terms of both lifestyle and business. Specialized design services also
encompass graphic, industrial and other specialized design services that have
close ties to the general state of the economy. Revenue of specialized design
services rose 6.7% in 2021, almost making up the ground lost during the first
year of the pandemic.
Accounting services doing well despite pandemic challenges
Businesses providing accounting,
tax preparation, bookkeeping and payroll services have been resilient through
the pandemic—it is estimated that their revenue did not decline in 2020 or 2021.
After rising 2.6% in 2020, the revenue of these businesses grew 5.9% in 2021.
Some changing trends likely helped the industry progress through economic
volatility, shifting tax deadlines and government support programs. Over time,
this industry has been expanding into non-traditional lines of business, such
as advisory and consulting services. Furthermore, as the pandemic forced changes
in typical business models, many accounting companies adapted their operating
methods (work from home, virtual interactions and cloud-based efficiencies).Note
Another banner year for informatics services
Software publishers and data
processing, hosting and related services sustained strong growth in 2021 as
more and more businesses embraced digital technologies, cloud-based services
and a reimagined future of work. Software publishers saw an 8.0% increase in
revenue in 2021, while revenue for data processing, hosting and related
services rose 15.7%.
Recovery varies in magnitude for administrative and support services
Tourism-related services still feeling the impacts of the pandemic
Tourism and hospitality
businesses continued to face volatility created by the pandemic as travel plans
were again rescheduled or cancelled in response to successive waves of COVID-19
and quarantine and border protocols in 2021. Travel restrictions in winter 2021
and the spread of the Omicron variant in late fall limited any real recovery
for travel arrangement and reservation services. The federal government
requested that all major Canadian airlines interrupt sun destination flights
from late January to April 30, 2021.Note
Most airlines expanded flight suspensions until the summer. As a result, revenue
of travel arrangement and reservation services continued to dwindle in 2021
(-48.8%). That industry suffered the deepest decline during the pandemic. The
role of travel agents is also changing as countries and airlines enforce many
different entry policies and mandatory health requirements that can be complex
for travellers to navigate.Note
The accommodation
services industry, which provides a wide range of lodging services (including
short-term rentals, hotels, housekeeping cottages and cabins, and recreational
vehicle parks and campgrounds), felt the continuing effects of the pandemic but
began to recover in 2021.Note
After a drop of almost half in 2020, revenue for this industry increased 22.9%
in 2021. The industry faced many challenges, including labour shortages (see
Chart 5), staff retention and scarce business travel, as fewer face-to-face
interactions were needed. While some of these factors may linger as the
pandemic runs its course, the accommodation services industry pivoted and accelerated
technological developments (for example, mobile applications) that helped fill,
in part, some of those gaps.Note
Data table for Chart 5
| Job vacancies, accommodation and food services | Job vacancy rate, accommodation and food services | |
|---|---|---|
| number | percent | |
| 2020 | ||
| October | 52,275 | 4.7 |
| November | 43,370 | 4.0 |
| December | 43,495 | 4.3 |
| 2021 | ||
| January | 33,015 | 3.4 |
| February | 40,275 | 4.6 |
| March | 71,570 | 7.7 |
| April | 64,510 | 6.7 |
| May | 78,365 | 7.8 |
| June | 123,700 | 12.2 |
| July | 137,910 | 12.0 |
| August | 166,005 | 12.9 |
| September | 189,485 | 14.0 |
| October | 155,415 | 11.5 |
| November | 133,605 | 10.2 |
| December | 140,225 | 10.8 |
Employment services a key link in the economic recovery as labour market
tightens
The
employment services industry is composed of employment placement agencies and
executive search services, temporary help services, and professional employer
organizations. Revenue is estimated to have grown 10.2% in 2021 as the economic
recovery and labour mobility supported demand for employment services. Labour
markets gained traction throughout the year. The unemployment rate dropped to
6.0% by the end of 2021, from a high of 13.4% in May 2020, while most other
labour market indicators have fully bounced back or exceeded pre-pandemic
levelsNote
(see Chart 6). Labour shortages, rising job vacancies and other pressures (an aging
workforce and job switching) also fuelled the demand for employment services in
2021.
Data table for Chart 6
| Males, 25 to 54 years-old | Females, 25 to 54 years-old | |
|---|---|---|
| percent | ||
| 2020 | ||
| January | 86.5 | 79.8 |
| February | 86.7 | 79.7 |
| March | 84.8 | 75.6 |
| April | 76.1 | 69.2 |
| May | 77.4 | 70.1 |
| June | 81.6 | 73.7 |
| July | 82.6 | 75.0 |
| August | 83.3 | 75.8 |
| September | 84.2 | 77.7 |
| October | 84.5 | 78.2 |
| November | 84.7 | 78.2 |
| December | 84.6 | 78.1 |
| 2021 | ||
| January | 84.2 | 77.1 |
| February | 84.9 | 78.2 |
| March | 85.5 | 78.4 |
| April | 85.3 | 78.0 |
| May | 85.3 | 77.8 |
| June | 85.3 | 78.5 |
| July | 85.3 | 78.7 |
| August | 85.5 | 78.7 |
| September | 86.2 | 79.9 |
| October | 86.6 | 79.9 |
| November | 87.1 | 80.7 |
| December | 87.8 | 80.7 |
Rental and leasing services make a comeback
Revenue of the consumer goods and
general rental industry rose 11.3%. The industry benefited from the easing of
restrictions on business operations and rising demand for renting household appliances
(such as home heating systems) as the number of housing starts soared in 2021.Note
Revenue of the commercial and industrial machinery and equipment rental and
leasing industry grew even more strongly, by 19.5%, as general conditions in
the energy sector improved (energy pricesNote
and investmentNote ).
Conclusion
Despite the strong bounce back and several positive
developments, businesses operating in the service sector are still contending
with risks associated with supply chain disruptions, inflationary price and
wage pressures, external geopolitical factors, labour constraints, and the
easing of government pandemic support programs. Technological and digital
advances are playing a role in alleviating some of these challenges, but price and
labour pressures are priorities for many businesses operating in the service
sector.
Data and methods
Analyzing GST revenue data helps
identify business trends before actual survey estimates are compiled.Note
After validation, the GST revenue data provided for several service industries a fairly accurate representation
of operating revenue, a key input into the measurement of economic statistics
such as the gross domestic product.Note
Similarly to the first year of the
pandemic, comprehensive public assistance programs provided support through
wage and rent subsidies to selected businesses in the service sector in 2021.Note While this
financial assistance would be accounted for in operating revenue, it does not
influence GST revenue remittances and as a result was not part of this
analysis.
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