With the conclusion of the U.S.-China trade talks, financial markets are feeling good, but award-winning forecaster Jim O’Sullivan of TD Securities warns that the best days of this 10-year economic expansion are behind us.
“The economy is slowing for sure,” O’Sullivan said after winning his 12th Forecaster of the Year contest, including the last nine in a row. Let that sink in.
O’Sullivan edged out Ryan Sweet of Moody’s Analytics and Christophe Barraud of Market Securities by the slimmest of margins in the contest that pitted 45 forecasting teams against each other.
O’Sullivan joined TD Securities as chief U.S. macro strategist in December after seven years as chief U.S. economist at High Frequency Economics.
O’Sullivan is forecasting a modest economic slowdown in 2020 and beyond, largely determined by a big downshift in job growth, slightly weaker household income and spending growth, still-cautious business investment, and a squeeze in corporate profit margins.
GDP at 1.5%
He sees gross domestic product growth slowing to 1.5% by the end of the year from around 2% now. GDP growth peaked at just over 3% in the middle of 2018. He believes that the Federal Reserve is paying much more attention to employment than to GDP, as it should.
He’s skeptical that U.S. exports to China will ramp up as fast as assumed in the deal signed Wednesday. He wonders “how will President Trump respond” if the pick-up is disappointing? With more tariffs?
“We don’t expect anxiety about trade to suddenly disappear, while domestic political uncertainty looks poised to rise,” he wrote to clients this week. “More fundamentally, we believe the decade-long expansion is showing strains, with profits being squeezed by a tight labor market.”
Geopolitical anxiety won’t disappear. “If business confidence has been subdued when the equity market has been surging, what will happen if equities
start falling?” he wonders.
He expects job growth to slow noticeably, from 223,000 per month average in 2018 and 176,000 in 2019 to about 75,000 per month by the end of this year. That trend sounds dire, but that pace of job growth would be roughly in line with natural growth in the workforce, and wouldn’t signal a recession as long as layoffs don’t take off.
If his prediction comes true, however, recession worries would likely arise again.
With inflation projected to remain below target, the Fed is tilting toward more interest rate cuts, especially if the economy seems to be slowing further. O’Sullivan has two Fed cuts penciled into his forecast, one in the fourth quarter this year and another in the first quarter of 2021.
He thinks the Fed has, in effect, already adopted a policy of average inflation targeting, in which the Fed would let inflation temporarily run hot to make up for past shortfalls.
Come from behind win
O’Sullivan was trailing in the 2019 forecasting contest in September, but he came back with a strong performance in the final stretch.
Three of his forecasts stand out:
For September retail sales, the consensus was predicting a solid gain of 0.3%, but the release surprised everybody with a 0.3% decline. O’Sullivan had the lowest forecast at 0.0%.
For October durable goods orders, the consensus was predicting a 1.1% drop, but the report surprised with a 0.6% gain. At 0.3%, O’Sullivan was the only forecaster who had predicted an increase.
The situation reversed for November durables. Here the consensus saw a 1.2% gain, but the release showed a 2% drop. O’Sullivan, one of only two forecasters with a minus sign, had the most accurate forecast with a 1.2% decline.
O’Sullivan has dominated MarketWatch’s contest over the years. He’s won the monthly contest 24 times (most recently in November), and the annual contest 12 times, including the last nine.
Sweet and Barraud have given O’Sullivan some tough competition the past few years. Sweet came in 2nd in 2019 and 2017 and fourth in 2016 and 2018. Barraud was third in 2019 and 1018 and fifth in 2017.
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Why falling immigration isn't that bad for the economy during COVID-19 – Yahoo Canada Finance
COVID-19 travel restrictions have put a big dent in immigration, widely seen as something the economy relies on, but the negative effects aren’t as bad as they might seem.
The latest government numbers show 13,645 fewer permanent residents came to Canada in July, down 63 per cent from the same month last year. April and June were similarly weak periods, making the likelihood of reaching the federal government’s target of 341,000 less likely.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For a country like Canada with an aging population and relatively low population growth, immigration is needed to counter demographic headwinds. But the pandemic’s effects more generally, far outweigh the specific negative effects of lower immigration.” data-reactid=”18″>For a country like Canada with an aging population and relatively low population growth, immigration is needed to counter demographic headwinds. But the pandemic’s effects more generally, far outweigh the specific negative effects of lower immigration.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“I think we need to keep the incremental impact of new immigration on economic growth in perspective. Even at its maximum pace in recent years, it was adding roughly 1 per cent to population per year and roughly the same to the labour force.” BMO chief economist Doug Porter told Yahoo Finance Canada. ” data-reactid=”19″>“I think we need to keep the incremental impact of new immigration on economic growth in perspective. Even at its maximum pace in recent years, it was adding roughly 1 per cent to population per year and roughly the same to the labour force.” BMO chief economist Doug Porter told Yahoo Finance Canada.
“So, even a complete shutdown of immigration would (roughly) shave 1 percentage point from growth (or a bit less). Not small by any means, but that compares with what could be a 6 per cent drop in GDP (OECD said -5.8 per cent for this year, we are looking at -5.5 per cent).”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Around 1.1 million Canadians are still out of work, so immigrant workers aren’t exactly in high demand these days.” data-reactid=”21″>Around 1.1 million Canadians are still out of work, so immigrant workers aren’t exactly in high demand these days.
“Overall, given the realities of COVID and the now-soft demand for labour, the cool down in immigration by itself will not be particularly harmful — and certainly less so than it would have been say a year ago.” said Porter.
Long term effects without immigration
Pedro Antunes, the Conference Board of Canada’s chief economist, also thinks the effects are mitigated in the short-term but that doesn’t mean the economy will be totally unscathed.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Some sectors will be affected because immigration drives consumer spending, demand for housing, and other services directly related to increased population,” he told Yahoo Finance Canada.” data-reactid=”25″>“Some sectors will be affected because immigration drives consumer spending, demand for housing, and other services directly related to increased population,” he told Yahoo Finance Canada.
However, he believes it’s more important to look at the long term repercussions of reduced immigration.
“Canada’s underlying capacity is dependent on private and public investment, adoption of technology and the number of workers (and the skills of those workers). We know from our prior research that without immigration, our labour force would be flat or declining (since exiting baby-boomers outnumber school leavers),” said Antunes.
“If immigration levels are reduced over a few years (we think 2020 and 2021 at least) the result is a long-lasting impact on our potential (or productive capacity).”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.” data-reactid=”29″>Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Download the Yahoo Finance app, available for Apple and Android.” data-reactid=”30″>Download the Yahoo Finance app, available for Apple and Android.
EU looks to fast 5G, supercomputers to boost virus-hit economy – TheChronicleHerald.ca
By Foo Yun Chee
BRUSSELS (Reuters) – The European Commission on Friday urged the 27-country bloc to work together to speed up the rollout of fibre and 5G networks to boost the region’s virus-hit economy and secure its technology autonomy.
EU countries should develop a best practices toolbox by March 30 with the aim of cutting cost and red tape, provide timely access to 5G radio spectrum and allow for more cross-border coordination for radio spectrum for 5G services, the EU executive said.
The coronavirus outbreak showed how important internet services and 5G are, European digital chief Margrethe Vestager said.
“We have seen the current crisis highlight the importance of access to very high-speed internet for businesses, public services and citizens, but also to accelerate the pace towards 5G,” she said in a statement. “We must therefore work together towards fast network rollout without any further delays.”
The Commission also proposed a recommendation to boost research and activities to develop new supercomputing technologies.
“Keeping up in the international technological race is a priority, and Europe has both the know-how and the political will to play a leading role,” Internal Market Commissioner Thierry Breton said in a statement.
The Commission is investing 8 billion euros($9.46 billion)in the next generation of supercomputers.
(Reporting by Foo Yun Chee; Editing by Tomasz Janowski)
Charting the Global Economy: Fed Signals Rates on Hold for Years – BNN
(Bloomberg) — The Federal Reserve signaled it will keep its benchmark interest rate near zero through 2023 to help the world’s largest economy recover from the coronavirus pandemic.
Cheap borrowing costs are fueling demand for U.S. housing and leaving builders brimming with optimism in the process. In China, retail sales and industrial output are on the mend, while in the U.K., the virus-related shutdowns are having a large negative impact on youth employment.
Here are some of the charts that appeared on Bloomberg this week, offering insight into the latest developments in the global economy:
The global economic slump won’t be as sharp as previously feared this year, though the recovery is losing pace and will need support from governments and central banks for some time yet, according to the OECD.
The Federal Reserve’s so-called dot plot, which the central bank uses to signal its outlook for the path of interest rates, shows that officials expect no change in policy this year and borrowing costs near zero through 2023.
Homebuilder optimism rose to a record in September, with low mortgage rates driving a housing boom that has boosted the pandemic economy, National Association of Home Builders data show.
The U.K.’s lockdown hit young workers particularly hard, with employment in the 16-24 age category falling by 156,000. That may reflect the share of young workers in hotels, restaurants and bars, a sector devastated by the pandemic.
China’s economic recovery from Covid-19 accelerated, spurred by a rebound in consumption as virus restrictions eased and larger-than-expected gains in industrial output. Retail sales rose for the first time this year in August, by 0.5% from a year earlier, while industrial production expanded 5.6%, against a forecast of 5.1%.
Scoring 75 emerging-market and frontier economies, Bloomberg Economics finds that Asia leads in getting closer to pre-outbreak norms, with some countries in Africa and Eastern Europe also outperforming. Latin America is still struggling to contain the pandemic, with 18 of the bottom 25 in the ranking in Latin America or the Caribbean.
Saudi Arabia’s crude exports dropped to the lowest since at least 2016 in the second quarter as it led a campaign alongside Russia to curb oil production following a coronavirus-induced price crash. While the effort yielded a stark turnaround in prices in May and June, Saudi revenue from oil sales still plunged almost 62% in the three-month period from a year earlier.
South Africa is among the countries with the highest percentage of smokers globally, with almost one in every three adults lighting up. So when the government banned cigarette sales for about five months of the nation’s Covid-19 lockdown, some 90% found a workaround.
©2020 Bloomberg L.P.
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