(Bloomberg) — The velocity of the U.S. economy’s post-pandemic rebound hinges on more than just an increasingly capable consumer, and business spending appears poised to deliver its own boost.
Economic growth balances on a combination of factors, notably consumer spending, housing demand, government outlays and investment. And while household spending is poised to surge in the next two quarters, capital investment is already flexing its muscle.
Like the rest of the economy, nonresidential fixed investment — including capacity-enhancing projects such as warehouses, distribution facilities, machinery, computers and software — plummeted in the first half of 2020. But in the last half of the year, business spending surged, driven in large part by investment in equipment.
Alphabet Inc.’s Google, PepsiCo Inc. and retailer Urban Outfitters Inc. are among companies investing in operations as businesses seek more efficiency or adapt to changing consumption habits in a post-Covid world.
In the fourth quarter, when consumers pulled back after a record pace in the previous three months, nonresidential outlays raced ahead and outpaced personal spending by the most since 2011 in percentage terms. More recent monthly data show business investment growth continues to roll on.
From August through January, orders for capital goods excluding military hardware and commercial aircraft — a proxy for business investment — posted the strongest six-month annualized pace of growth in data back to 1992.
And that trend is seen continuing as Covid-19 vaccinations increase, government officials loosen business restrictions and household spending quickens.
“As consumption rebounds, we think that business investment will also grow just as quickly, if not more quickly than consumer spending,” said Brian Rose, senior economist Americas at UBS Group AG.
Part of that may reflect pent-up investment. A recent Census Bureau survey of small businesses found that nearly a fourth of the respondents had postponed their planned 2020 capital expenditures. As economic growth strengthens, smaller firms could join larger companies in plowing more capital into their businesses.
A Deloitte LLP survey of 128 chief financial officers across North America showed first-quarter capital spending in the U.S. rising 9.8% from a year ago.
Investment in equipment will rise another 15.5% on an annualized basis in the first quarter after growing 25.7% in the final three months of 2020, according to the latest Federal Reserve Bank of Atlanta GDPNow estimate. Intellectual property and outlays for nonresidential structures are also seen advancing further.
“The pandemic itself and the aftermath will require business investment,” Rose said.
For instance, when a restaurant reopens under new management, some of the idle equipment can be re-used but still, a sizable amount of investment is required to retool the space. An estimated 91,000 restaurants and bars closed in 2020, the bulk of which were small, according to data compiled by Technomic, a Chicago-based research company. Some of these spaces are being converted into chains and ghost kitchens.
“Companies that couldn’t keep their head above water had to pull the plug, but there are opportunities out there to change business models,” said Jennifer Lee, senior economist at BMO Capital Markets. “Changing things around to keep your customers and yet keep the lights on — that spurs spending.”
Other investments may be more structural, such as adding more warehouses and distribution centers or perhaps re-designing or converting office space. Google said Thursday that it’s planning a $7 billion investment in offices and data centers that could create 10,000 new jobs this year.
Frank Conforti, chief operating officer of Urban Outfitters said on a March 2 earnings call that capital expenditures are planned at about $250 million for the clothing retailer’s fiscal year, in large part because of the construction of a new distribution facility just outside of Kansas City.
New technologies, such as 5G, may also come into play. As will broader initiatives like shifting to more environmentally friendly products and business practices.
Boeing Co. received 82 orders in February — its second-best month in two years — as some airlines shift toward more fuel-efficient planes.
The rise of automation will also play a role. Research has shown the pandemic accelerated the automation of jobs, and by 2025 the World Economic Forum estimates the time spent on current tasks by humans and machines will be equal. Half of the employers surveyed for the report said they planned to accelerate automation as a result of Covid-19.
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Hugh Johnston, chief financial officer of PepsiCo, said in February that he expects capital spending to remain “elevated for the next couple of years” as the company looks to increase plant automation and capabilities.
Low borrowing costs have the potential of supporting capital investment, though research shows mixed evidence on the impact of interest rates and business spending.
For the businesses that can invest, the recently-signed $1.9 trillion pandemic relief bill — the second-largest stimulus package in U.S. history — offers an additional incentive.
“You’ve got unprecedented amounts of fiscal stimulus coming,” BMO’s Lee said. “It’s a pretty powerful tailwind for economic growth and for businesses as well.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
