WASHINGTON (AP) — The U.S. economy grew last year at the fastest pace since Ronald Reagan’s presidency, bouncing back with resilience from 2020’s brief but devastating coronavirus recession.
The nation’s gross domestic product — its total output of goods and services — expanded 5.7% in 2021. It was the strongest calendar-year growth since a 7.2% surge in 1984 after a previous recession. The economy ended the year by growing at an unexpectedly brisk 6.9% annual pace from October through December, the Commerce Department reported Thursday.
Squeezed by inflation and still gripped by COVID-19 caseloads, the economy is expected to slow this year. Many economists have been downgrading their forecasts for the current January-March quarter, reflecting the impact of the omicron variant. For all of 2022, the International Monetary Fund has forecast that the the nation’s GDP growth will slow to 4%.
Many U.S. businesses, especially restaurants, bars, hotels and entertainment venues, remain under pressure from the omicron variant, which has kept millions of people hunkered down at home to avoid crowds. Consumer spending, the primary driver of the economy, may be further held back this year by the loss of government aid to households, which nurtured activity in 2020 and 2021 but has mainly expired.
What’s more, the Federal Reserve made clear Wednesday that it plans to raise interest rates multiple times this year to battle the hottest inflation in nearly four decades. Those rate increases will make borrowing more expensive and perhaps slow the economy this year.
Growth last year was driven up by a 7.9% surge in consumer spending and a 9.5% increase in private investment. For the final three months of 2021, consumer spending rose at a more muted 3.3% annual pace. But private investment rocketed 32% higher, boosted by an increase in business inventories as companies stocked up to meet higher customer demand.
“The recovery remained robust, but the trend in the pace of gains of crucial categories like consumption was decelerating,” Contingent Macro Advisors said in a research note. “While stronger than expected at the headline level, this report still supports the consensus notion that growth should steadily decelerate over 2022.”
Arising from the 2020 pandemic recession, a healthy rebound had been expected for 2021. GDP had shrunk 3.4% in 2020, the steepest full-year drop since an 11.6% plunge in 1946, when the nation was demobilizing after World War II. The eruption of COVID in March 2020 had led authorities to order lockdowns and businesses to abruptly shut down or reduce hours. Employers slashed a staggering 22 million jobs. The economy sank into a deep recession.
But super-low interest rates, huge infusions of government aid — including $1,400 checks to most households — and, eventually, the widespread rollout of vaccines revived the economy. Many consumers regained the confidence and financial wherewithal to go out and spend again.
The resurgence in demand was so robust, in fact, that it caught businesses off guard. Many struggled to acquire enough supplies and workers to meet a swift increase in customer orders. With many people now working remotely, shortages became especially acute for goods ordered for homes, from appliances to sporting goods to electronic equipment. And with computer chips in especially short supply, auto dealers were left desperately short of vehicles.
Factories, ports and freight yards were overwhelmed, and supply chains became ensnarled. Inflation began to accelerate. Over the past 12 months, consumer prices soared 7% — the fastest year-over-year inflation since 1982. Food, energy and autos were among the items whose prices soared the most.
Late last year, the economy began to show signs of fatigue. Retail sales, for instance, fell 1.9% in December. And manufacturing slowed in December to its lowest level in 11 months, according to the Institute for Supply Management’s manufacturing index.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
