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Strong US economic growth for last quarter likely reflected consumers’ resistance to Fed rate hikes – Halifax.CityNews.ca

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WASHINGTON (AP) — The government is expected Thursday to report stellar growth for the U.S. economy during the July-September quarter, highlighting the durability of consumer and business spending despite the Federal Reserve’s efforts to cool the expansion with high interest rates.

Last quarter’s robust growth, though, will probably prove to be a high-water mark for the economy before a steady slowdown beginning in the current October-December quarter and extending into 2024.

Thursday’s report is sure to be seized upon by the Biden administration as evidence that its policies have helped spur solid growth, though surveys show that most Americans hold a sour view of the president’s handling of the economy.

The Commerce Department’s figures are expected to show that the nation’s gross domestic product — the economy’s total output of goods and services — expanded at a 3.8% annual pace in the third quarter, according to a survey of economists by FactSet. If accurate, that would amount to the fastest quarterly pace in nearly two years and up sharply from a 2.1% growth rate in the April-June quarter. Some economists have estimated that last quarter’s annual growth could turn out to be as high as 4.5%.

Americans likely drove the economy by stepping up their spending, splurging on everything from cars to concert tickets to restaurant meals. Businesses have also been spending on new factories and other buildings, and companies likely increased their stockpiles of goods, which boosts output.

Still, the breakneck pace is expected to slow because consumers are likely reining in their spending in the final three months of the year, and the sluggish housing market is dragging on the economy. This month, nearly 30 million people began repaying several hundred dollars a month in student loans, which could slow their ability to spend. Those loan repayments had been suspended since the pandemic first struck three years ago.

The economy faces other challenges as well, including a spike in longer-term interest rates since July. The average 30-year mortgage rate is approaching 8%, a 23-year high, putting home buying out of reach for many more Americans.

Fed officials have acknowledged the pickup in growth, which could potentially undercut their efforts to fight inflation. Brisk consumer spending typically leads companies — those that sell physical goods as well as those, like restaurants and entertainment venues, in the economy’s vast service sector — to raise prices, thereby fueling inflation.

But Fed Chair Jerome Powell, in a discussion last week, said he was generally pleased with how the economy was evolving: Inflation has slowed to an annual rate of 3.7% from a four-decade high of 9.1% in June 2022. At the same time, steady growth and hiring have forestalled the recession that was widely predicted at the end of last year.

If those trends continue, it could allow the Fed to achieve a highly sought-after “soft landing,” in which the central bank would manage to slow inflation to its 2% target without causing a deep recession.

At the same time, Powell has acknowledged that if the economy were to keep growing robustly, the Fed might have to raise rates further. Its benchmark short-term rate, which affects the rates on many consumer and business loans, is now about 5.4%, a 22-year high.

“Additional evidence of persistently above-trend growth,” Powell said last week, “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”

Fed officials were surprised by a blowout government report last week on retail sales, which showed that spending at stores and restaurants jumped last month by much more than expected. Americans spent more both for necessities like gas and groceries as well as for discretionary items, such as cars and restaurant meals, on which consumers typically cut back if they are worried about a weakening economy.

There are signs that consumers might continue to resist the Fed’s efforts to cool spending and the economy. Many student loan borrowers started repaying their loans before the official end of the moratorium Oct. 1, suggesting that they were able to make those payments, at least for now, without having to sharply cut back spending in other areas.

“We view this initial jump as a sign that households were willing and able to resume these payments without requiring a large reduction in spending,” economists at JPMorgan write in a research note.

And while high mortgage rates have depressed the sales of existing homes, the vast majority of homeowners are still paying low rates that are fixed for 30 years, meaning that their housing costs remain low even as the Fed hikes rates. That’s a contrast to homeowners in the United Kingdom and Europe, for example, who are more likely to have floating-rate mortgages. About eight in 10 U.S. homeowners have a mortgage rate below 5%, according to online brokerage Redfin.

With inflation generally easing, the Fed is expected to keep its short-term rate unchanged when it meets next week. Many economists increasingly expect the central bank’s policymakers to keep rates on hold when they meet in December as well.

Powell will hold a news conference Wednesday that will be scrutinized for any hints about the Fed’s next moves.

Christopher Rugaber, The Associated Press

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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