Is the U.S. economy any good right now? This seemingly straightforward question is not such an easy one to answer. Yes, unemployment is low, post-COVID inflation’s worst days are well behind us, and the Federal Reserve is now predicting a solid 2 percent growth rate this year. Then again, stubbornly high prices for food and homes continue to bedevil Americans looking for stability. Joe Biden has managed to avoid what looked like an all-but-certain recession so far, but whether voters will reward him for that in November is far less clear.
Mark Zandi is the influential chief economist at Moody’s Analytics, where he and his team oversee a kind of war room for financial and economic data, tracking the way Americans feel about the economy. In January, Zandi put out a report calling the race for Biden — at least, as long as the economy doesn’t tank the rest of the year. But since then, inflation, which had appeared to be on a steeply downward trajectory, has once again proven stickier than anticipated. I recently spoke with Zandi about the gap between favorable economic indicators and the reality voters live in, and how it will shape the presidential election.
At the top of your January report, you say that the election hinges on the strength of the economy between now and Election Day. Is this election more dependent on the economy than previous ones? No. The economy is always important. There might be some exceptions when we get pandemics and wars, but for the most part, I think the economy is topic number one for most people. Right now, voters are looking at the economy to their own financial position, and what they see determines in large part how they vote.
As a general matter, who is more motivated to vote? People who are feeling well-off, or those who feel like they’re being left behind? In general, people who are dissatisfied, uncomfortable with their financial position, are more likely to vote against the incumbent party. If things aren’t going well for them financially, if they don’t have a job or their purchasing power has been undermined or they’re having trouble making ends meet or making the medical payment, they’re going to blame whoever is at the till, whoever is ostensibly running the economy.
In your analysis from January, you said that, short of a recession, you would expect Biden to win. But we’ve seen that a lot of people have been thinking that we’re in a recession, even though we’re not. You’re right — perceptions are ultimately the critical determining factor. The economy, based on the numbers, could be as good as it gets, but it doesn’t really matter unless people believe it. It’s really how people feel about their personal financial situation, and that’s a different kettle of fish. That’s why I think this election is going to be as close as it is, because if it was just based on the numbers, Biden should win hands down, but he’s not going to.
The culprit here is inflation. People really have gotten unnerved by the higher prices they’ve had to pay, mostly for staples. Food is at the top of the list, and then rent, the cost of housing. Those are the things that really matter a lot. Gas prices would matter, also, if they started to rise. If they start pushing higher and go up another half a buck, a buck, then that’s also going to be on the list.
When you’re analyzing inflation and wages, do you look at that on a national level, or state by state? State by state. The modeling work we do is based on the Electoral College, so we’re remodeling at a state level. So, one of the key variables is real household income — it’s real after inflation.
In swing states like Nevada, Pennsylvania, North Carolina, Georgia — what does real income look like? Are people making more than the inflation rate? They are. Over the past year, real household incomes have been steadily rising. Wage gains are stronger than the rate of inflation. Of course, real wages fell in 2022 and early 2023, so much of this recent increase over the past year is basically catching up.
We’ve got another few months to go. If these trend lines continue, and we expect they will, perceptions will be close enough to reality to push Biden over the top in those four of the five key swing states that are within a percentage point.
The state that matters the most, by far, is Pennsylvania. That’s key. And the Pennsylvania economy is okay. It’s not, you know, Georgia-like. It’s not Arizona. It’s not on par with those economies. But it’s okay. That makes the election feel even closer because it’s just okay. You know, it’s not rip-roaring.
Do you mean that Georgia, Nevada, and Arizona’s economies are doing very well? Yeah. Of the five swing states, four of them are doing well. It’s Pennsylvania that’s in the middle of the pack.
What is it about Pennsylvania that is holding it back compared to other states? It’s partly demographic. Pennsylvania is actually an older state, and is a bit of a casualty from a remote-work dynamic. Philadelphia and Pittsburgh have made significant strides in doing well, by Pittsburgh and Philly standards.
One thing that limits the outflows of people, interestingly enough, is that the state does not tax social-security benefits. Retirees, generally lower-income, stick around in the state to avoid paying sales tax.
So is there a catch when it comes to inflation and electoral politics — where if people are feeling good about the economy, then they are less motivated to vote, so the real goal is just to tamp down on the people who would be voting against you, rather than pumping up the numbers of people who want to vote for you? There’s some truth to that. It’s really about those independent voters that are kind of on the margin in a few swing states, and really in a few swing counties. That’s one of the things I kind of came away with. We basically elect a president based on six, ten counties across the country. It’s really about turnout in those counties. Will the Democrats in Philadelphia turn out? The Republicans in Pinellas County [in Florida]? Or the Democrats in DeKalb County and Atlanta? That’s really what matters in terms of the election, how motivated they are.
Have you drilled down on those counties, to see how well they’re doing economically? Yeah, again, those are the big counties generally in those states, and they tend to mirror the state. They’re doing okay. Philadelphia and Pittsburgh are doing reasonably well, better than the rest of the state, and that may favor Biden as well.
Take Philadelphia. I live in the Philadelphia region, in Chester County. Philadelphia is actually doing well because it’s got a lot of eds and meds — a lot of universities and hospitals. Those industries are doing very well, and that’s driving a lot of economic activity. And I had to say, I grew up in Philadelphia, I’ve never seen the city as vibrant as it is today. Despite the outflows, you’ve got a lot going on here.
There’s a ton of data that you must be taking in — not only the economic data, but the voting data from primaries and caucuses. Are you able to glean anything from the votes so far, either from Republicans or Democrats? In our modeling, we account for economic factors and political factors. And the key political factor is turnout — can you get your voters to go to the polls? And that goes right back to enthusiasm. And it appears that Trump’s voters are more enthusiastic than Biden’s voters, at least at this point in time.
When it comes to inflation, obviously, the big thing to watch is the Fed’s interest rate. Markets seem to think the Fed won’t cut until July, which would mean a maximum of two cuts prior to the election. Do you think that outcome would make a difference in the election? It can’t hurt. For every rate cut, you’ll see a decline in interest rates on credit cards, on buy-now-pay-later loans, probably on auto loans. So it would provide some relief. It would be mostly on the margin.
The interest rate that matters the most is the 30-year fixed-rate mortgage right. And in all likelihood, those rate cuts will not impact that. That’s determined by long-term interest rates. The Fed influences it through expectations that are embedded, so the fact the markets expect two rate cuts, quarter-point each by the end of the year, is already reflected in the current mortgage rates.
It would also come fairly late for the housing market. Yeah, exactly. If it came in July, as markets anticipate, by the time it showed up in sales, it would probably be beyond the point where it really mattered to most people.
It’s all about expectations. If people see rates coming in, and markets are expecting rates to come down further, people could take that into consideration. Trend lines matter to people, because they’re doing a forecast, and they’re going to be using what happened recently to do the forecast.
It’s these little things on the margin that may actually decide who wins this thing. It’s going be that close.
This interview has been edited for length and clarity.
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.
