Economy

The Economy Is Sick

Published

2 years ago

November 13, 2022

Despite official reassurances that the economy is doing well, still upbeat hiring statistics, and a modest rise in third quarter real gross domestic product (GDP), Americans rightly remain worried about the economy’s future. The White House has stressed that the U.S. economy is doing better than others. That is true, but it does not mean that things here are going well. American households can see their finances suffering from the effects of inflation and know that the trend bodes ill.

At the core of the problem is how people have begun to outspend the growth of their incomes. It is easy to understand why people are spending faster than they otherwise might. Inflation at near 40-year highs provides everyone with a huge incentive to buy before the prices rise again. The pressure is evident even with groceries. With the price of food rising at more than 11 percent a year, householders are only rational to stock up on non-perishables and to cram their freezers as full as they can. The incentive is even stronger when it comes to big-ticket items such as cars, appliances, and what the government statisticians refer to as “durable goods.” With new car prices rising at about 9.5 percent a year, stretching to buy a year earlier than you might is almost like getting a 10 percent discount on the price you are likely to pay if you wait.

But if such a rush to spend is rational, it is also destructive. According to the Commerce Department’s Bureau of Economic Analysis, consumer outlays have risen at almost an 8 percent annual rate since January, but personal incomes have risen at only a 5.5 percent rate. Such a difference cannot persist for long. A pullback is coming.

Signs of financial destress appear on both sides of household balance sheets. Levels of revolving credit – mostly credit cards – have accelerated tremendously. This debt load grew at an 18.1 percent annual rate in August, the most recent month for which data are available, far above the 8 percent rates of advance recorded this time last year. Measuring the same phenomenon from a different direction, the Commerce Department reports a major slowdown in household rates of saving. Flows of monies into savings have dropped 25 percent from what they were at the beginning of this year. As a percent of after-tax income, savings flows have dropped from 4.7 percent this past January to merely 3.1 percent in September, the most recent month for which data are available. True, money is still flowing into savings, but since the rich always have a surplus with which to add to wealth, the marked slowdown implies that many in the middle class and certainly of lower-income status have already given up saving.

Since households already sustain spending rates in excess of income growth, future consumption cutbacks are all but assured. The growing debt load as well as savings shortfalls will further constrain the ability to spend. The inevitable consumer cutbacks will lead to layoffs, and the attendant loss of those incomes will further constrain spending. Since consumer spending constitutes some 70 percent of the U.S. economy, those cutbacks will all but ensure a major recessionary push in coming months and quarters.

These matters raise a second and more fundamental concern. Heavy household debt levels will compete with business for the credit it needs to invest in new facilities and so expand the economy’s productive ability generally. The slowdown in flows of household savings will compound the problem. Especially because the Federal Reserve’s anti-inflation campaign is constraining the rate of new money creation, the financial system will depend more than usual on household savings to get business the credit it needs for expansion. It looks like the funds will not be there.

According to a widely-accepted rule of thumb, the two quarters or real declines in the nation’s gross domestic product (GDP) during this year’s first half signaled that the economy is already in recession. If for technical reasons, some – most especially the Biden White House – refuse to acknowledge this fact, the state of affairs with household finances chronicled here suggests – and strongly – that the economy will soon be in recession. And if the bad news of the first half does in fact signal that a recession has already begun, then the picture described here suggests – equally strongly – that the recession will extend into 2023. With inflation still raging, this coming year might well deserve the descriptor: “stagflation.”

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Economy

Statistics Canada reports wholesale sales higher in July

Published

13 hours ago

September 13, 2024

Anne Joseph

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.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

3 days ago

September 10, 2024

Anne Joseph

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.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

3 days ago

September 10, 2024

Anne Joseph

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.

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