The American economy isn’t looking great right now. U.S. GDP shrank last quarter, despite a hearty showing from American consumers. Inflation is high; markets are down; both wages and personal-savings rates show some troubling statistical signals. Is the U.S. destined to have a recession in 2022? I don’t know for sure. But here are nine signs that worry me.
1.Everybody’s stock portfolio is disgusting right now. The Nasdaq is down 30 percent. Growth stocks and pandemic darlings such as Peloton and Zoom have crashed more than twice that amount. Hedge funds that backed these growth stocks, including Ark and Tiger Global, have been crushed. If you look at your 401(k), you’ll see that … no, scratch that, you should under no circumstances look at your 401(k).
“The stock market is not the economy” is a thing that some people like to say. But it’s not a very useful mode of analysis. Health care isn’t the economy either, and neither is the gross metropolitan product of Los Angeles. But if either of those things crashed by 30 percent in a quarter, we would all agree that was important. Sharp declines in equity values can trickle down through the economy in all sorts of ways, discouraging investment and spending, or leading to a contagion of layoffs.
2. The crypto bubble has popped. Crypto fans had a fun ride, powered by exuberant risk taking in an era of low interest rates. But now the car is coming down the other side of the roller coaster. As fear and interest rates spike, investors are selling off their positions and billions of dollars of value are being erased from the industry. By one estimate, more than $200 billion of stock-market wealth has been destroyed within crypto alone, in just a matter of days. The bursting of the crypto bubble seems quite reminiscent of the dot-com bubble of 2000, when the Nasdaq crashed and the effects reverberated throughout the economy, wiping out retail investors and pulling down business investment until we ended up in a brief recession. If the crypto bubble popping were the only thing happening right now, I don’t think a recession would be likely. Except it’s not even close to the only (or even the most important) thing happening right now.
3. Inflation is very high and broad-based, and that’s bad. This week’s inflation headlines were a bit confusing. TheWall Street Journalreported that inflation had “eased.” TheNew York Times reported that prices are “rising rapidly,” at a pace close to a 40-year record. Who’s right? They both are. The rate of price increases is declining, but the level of price increases is still extremely high and frustratingly broad-based. Several months ago, some economists offered succor to worried consumers by pointing out that inflation was overwhelmingly about a handful of weird categories, such as used cars. Well, that’s no longer true. Today used-car prices are actually declining as inflation has moved on to service industries, such as restaurants and tourism. This week, gas prices hit their highest average nominal price ever. Inflation is bad for all sorts of reasons. People really hate it: The University of Michigan’s Index of Consumer Sentiment is near its 60-year low.
4. A lot of people feel poorer than they did one year ago. Unemployment is very low, and the labor market is tight, which means workers can easily quit jobs and take new positions to make more money. (This trend is sometimes confusingly referred to as the “Great Resignation.”) That’s a nice situation. But inflation is rising every month, and raises rarely come more than once a year. That means “real,” or inflation-adjusted, wages are actually declining. Worse, according to the Atlanta Federal Reserve, wage growth is starting to level off, even as inflation continues to march on. This isn’t a tenable situation.
5. Savings are falling, and debt is rising. From 2020 to 2021, the U.S. government sent most American households several thousand dollars in checks to get them through the pandemic. With much of the economy shut down, many Americans held on to that stimulus cash, and the personal-savings rate soared to a 60-year record. But now Americans have spent just about all that cash, and the personal-savings rate has fallen to below its 2010s average. During an unstable moment for the economy—with markets collapsing, and inflation rising, and the Federal Reserve slamming the brakes on the economy—the typical household doesn’t have much in the way of protection. Instead consumer debt is breaking new record highs.
6.The Federal Reserve’s interest-rate hikes are already causing mayhem. One of the Federal Reserve’s mandates is to keep inflation around 2 percent. Well, so much for that one. Inflation has skyrocketed past 8 percent, leading the Fed to announce a spree of rate hikes designed to slow down economic activity. In theory, the plan works like this: The Federal Reserve raises interest rates, which makes it more expensive to borrow money for mortgages, cars, and business investments. As a result, investment in all those categories and more declines, and the economy cools off. But here’s the problem. Modern history has very few examples of unemployment this low and inflation this high where rate increases haven’t caused a recession. On the path to crushing inflation, the Fed may destroy trillions of dollars of wealth and economic activity.
7.China is a mess. The world’s second-largest economy has had a strange 2022. China’s zero-COVID policies have led to shocking lockdowns in major cities such as Shanghai, freezing economic activity. China is also dealing with a real-estate-investment implosion, falling business confidence, and startling declines in economic activity. Why is this troubling for the U.S.? Because China was projected to account for about one-quarter of global economic growth in the next few years. When China sneezes—or, more apt, when Chinese officials forcibly quarantine anybody who sneezes—the world could catch a cold. The U.S. might have been in a strong position to deal with a Chinese slowdown if its other trading partners were all doing well. But they’re not.
8.A recession is coming for Europe. The U.K. economy is shrinking, and the central bank says inflation will exceed 10 percent this year. War in Ukraine has sent energy prices skyrocketing throughout Europe, and most economists believe that the continent’s economy will contract this year. Europe seems very likely headed toward both stagnation and inflation—the dreaded combination that, 50 years ago, gave birth to the awful term stagflation. If Europe shrinks while Chinese growth decelerates, American exporters will have a hard time contributing to growing GDP.
9. Oh yeah, it’s still a pandemic. Restaurant activity and airline travel are nearly back to their pre-pandemic highs as most Americans return to something like “normal.” But we don’t know what else the virus and its variants are going to throw at us. Could the next variant be more transmissible and more deadly, and also get around our immunity? I hope not. But these are the 2020s. Anything is possible.
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.
