WASHINGTON — A portrait of a robust U.S. economy is sure to take centre stage Tuesday night when President Donald Trump gives his third State of the Union address. It is an economy that has proved solid and durable yet hasn’t fulfilled many of Trump’s promises.
Nine months before the election, the economy keeps growing steadily if only modestly. Unemployment is at a half-century low. And consumers, the lifeblood of the U.S. economy, continue to spend. Average pay is rising faster than when Trump took office three years ago, with the largest percentage gains now going to lower-wage workers. Some research has found that this trend, which began in 2015 before Trump’s election, partly reflects higher state minimum wages.
Economists warn, though, that the U.S. expansion, now in its record-long 11th year, faces an array of threats. Most immediately, China’s viral outbreak has paralyzed business with the world’s second-largest economy. Starbucks and Apple have closed stores in China, airlines have cancelled flights and companies like General Motors have halted production there.
All of that could shave one-half percentage point off annual growth in the first quarter, Goldman Sachs economists forecast, though they expect the slowdown to be offset by a rebound in the second quarter. Boeing’s decision to halt production of its 737 MAX should also weaken growth in the first six months of the year, economists say.
America’s manufacturing sector is struggling, a reflection of Trump’s trade conflicts. High corporate debt levels have sparked concerns. Some analysts also worry that the Federal Reserve’s ultra-low interest rates have helped feed risky bubbles in stocks or other assets.
And leading Democratic presidential candidates, especially Sens. Bernie Sanders and Elizabeth Warren, have built their campaigns to unseat Trump around the message that the economy remains rife with inequality, with many workers struggling to afford college, housing or health care.
Trump is unlikely on Tuesday night to let any such doubts temper his standard message that under his stewardship, the economy is thriving, unemployment is falling, the stock market is roaring and that the best days are still ahead.
“I’m proud to declare that the United States is in the midst of an economic boom the likes of which the world has never seen before,” Trump said last month in Davos, Switzerland. “America is thriving, America is flourishing, and yes, America is winning again like never before.”
Yet what Trump calls an unprecedented boom is, by many measures, not all that different from the solid economy he inherited from President Barack Obama. Economic growth was 2.3% in 2019, matching the average pace since the Great Recession ended a decade ago in the first year of Obama’s eight-year presidency.
During the 2016 campaign, Trump boasted that his tax cut plan would boost annual growth to 4% a year — a brisk pace not seen since the late 1990’s. Instead, Trump, along with Obama, is one of two presidents since World War II not to have presided over a year of at least 3% growth. And few economists think the economy will hit that target this year.
Most analysts do think Trump’s tax plan helped accelerate growth, just not the way he had promised.
“The Trump tax cuts were a sugar high that juiced the economy temporarily,” said Ryan Sweet, an economist at Moody’s Analytics.
It put more money in Americans’ pockets, boosting consumer spending. The economy grew 2.9% in 2018, a healthy pace though the same as in 2015, the year before Trump’s election.
The administration had vowed, though, that the tax cuts would do more than just encourage Americans to shop more. The president’s top economists had said the tax cuts would accelerate corporate investment in machinery, computers and plants and office towers. All the new equipment would make workers more efficient, the argument went, thereby boosting productivity — the amount of output for each hour worked.
Greater productivity is one of the two main drivers of growth; the other is an increase in the number of U.S. workers. Both have slowed in the past decade.
Most economists partly blame Trump’s trade wars, particularly with China. The trade conflicts have left American companies much less certain about the economic outlook and reluctant to expand and invest. Business investment shrank in the final three quarters of last year.
Nor have Trump’s business tax cuts and deregulation made the economy more dynamic. The growth of new companies has remained anemic since the 2008 downturn. Larger businesses continue to dominate many industries, from technology to retail to finance.
All this is occurring despite significant stimulus. Trump has assailed Fed Chairman Jerome Powell for not cutting rates more, though the Fed’s benchmark rate is now in a range of just 1.5% to 1.75%, a very low level historically and one that is considered stimulative.
And increased federal spending has also helped support the economy. The Congressional Budget Office last week projected that the government’s deficit will top $1 trillion annually for the next decade.
“The accelerator is on the floor, but the vehicle is moving surprisingly slowly,” Larry Summers, Treasury Secretary under President Bill Clinton and a top economic adviser to Obama, said in early January.
Trump has also recently highlighted what he calls a “blue collar boom,” pointing to solid wage gains for lower-paid workers and healthy hiring in construction and manufacturing. But manufacturing jobs barely grew last year as factories hunkered down in the midst of the trade wars. And since Trump’s inauguration, manufacturing jobs have grown more slowly than employment overall has.
Ernie Goss, an economics professor at Creighton University in Nebraska, said the Midwest’s job growth has amounted to only about three-quarters of the national pace since Trump took office. Farmers have also suffered from the trade war, he said, as retaliatory tariffs by China have clobbered exports of soybeans and other commodities. That, in turn, has hurt manufacturers of farm equipment, including Deere and Caterpillar.
“Everyone says the economy is going great guns, but that is everything except agriculture and manufacturing,” Goss said.
What’s more, most campaign battleground states in the Midwest, such as Michigan, Pennsylvania, Ohio and Wisconsin, have lost factory jobs in the past year. Most manufacturing job growth under Trump’s presidency has occurred in Southern and Western states, said Dean Baker, senior economist at the liberal Center for Economic and Policy Research. With fewer union members in those states, those factory jobs generally pay less. In fact, manufacturing jobs, once a bulwark of the postwar middle class, now pay less on average than private-sector jobs overall, Baker said.
Still, despite modest growth, the record economic expansion has endured under Trump. There is also evidence that its durability has, in recent years, finally started to benefit a broader swath of Americans.
More people have come off the sidelines and found jobs, defying most economists’ predictions. The proportion of Americans in their prime working years — ages 25 through 54 — who are employed is now higher than before the Great Recession.
And last year, wages rose nearly 5% for the poorest one-fourth of Americans, far more than for the richest fourth, whose pay rose just 3%, according to the Federal Reserve Bank of Atlanta. Still, richer Americans hold a far greater portion of the nation’s wealth, with the top 10% owning nearly 85% of the value of all stocks.
The moderate pace of growth has meant that so far, the economy isn’t showing evident signs of excess akin to the housing bubble that led to the 2008 financial meltdown.
“This expansion has been slow and steady, but it could run for a few more years,” Sweet said. “There’s no reason that it needs to die. Sometimes slow and steady does win the race.”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
