It would be nice to think that everything will be back to normal by June. It may also be close to delusional.
As states around the country begin to reopen their economies with the coronavirus crisis still far from under control, we’re about to undertake a very big experiment about whether you can turn the economy on and off, basically, like a light switch. That getting back to business will be easy is a risky bet to make, and so far, signs point to it being pretty unlikely.
“We have to balance optimism with realism, and those are two factors that don’t necessarily point in the same direction,” said Mark Hamrick, senior economic analyst at Bankrate.
There’s no way to predict exactly what the future of the United States economy will be, precisely what the recovery will look like or when it will arrive. Even if businesses reopen, many people won’t risk getting themselves or a loved one sick to crowd into restaurants and bars. Still, a sort of magical thinking has settled into place: This was just a glitch, some people argue, and a swift economic recovery is just around the corner if we just will it.
But much of the evidence points to a longer and harder recovery than optimists project — instead of a “V-shaped” recovery (a quick dip down and then pop back up), at the very least, more of a Nike swoosh. Millions of Americans have lost their jobs, and even when workplaces open back up, some of those job losses will be permanent. The same goes for some businesses that have shuttered. And if the federal government waits too long to take further action to support the economy, the recovery will be longer and slower.
“It’s not going to be a snap-back V-shaped recovery, at least for Main Street,” said Alicia Sasser Modestino, an associate professor of public policy and economics at Northeastern University.
On Monday, the stock market popped, thanks in large part to positive data from a biotech company called Moderna, which showed that eight participants in a Covid-19 vaccine study it was running had developed antibodies against the virus. Now, the stock market isn’t the economy — and the market lately has been a lot more positive than the economy — but the jump is emblematic of the overall hope that scientists will find some sort of solution for the coronavirus pandemic and, poof, everything will be right again.
“If we beat this thing, it’s going to be unbelievable,” trader and CNBC host Jim Cramer told me earlier this year.
“If for some reason somehow one of these companies discovers a vaccine that cures and eradicates the virus, which is a small possibility, we’d be in a V-shaped recovery faster than you could turn around, and the market would go to the moon almost instantaneously,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
“The truth is, nobody knows when or if we’re going to have treatments or a vaccine for the virus, and if we wind up with modest treatments and no vaccine, this recovery is going to be pretty gradual,” Frederick said.
On Tuesday, stocks fell after a report suggested the Moderna vaccine news was overblown.
Some big-money investors are starting to sound the alarm that the rosy stock market is pointing to a bright economic future that is divorced from reality. Last week, billionaire investor Stan Druckenmiller warned that despite the Federal Reserve’s measures to boost markets, “the risk-reward for equity is maybe as bad as I’ve seen in my career.” David Tepper, the manager of hedge fund Appaloosa Management, said this is the “second-most overvalued stock market” he’s ever seen. Even Warren Buffett, who in 2008 encouraged investors to “buy American,” at Berkshire Hathaway’s annual meeting recently, struck a more pessimistic tone. “You can bet on America, but you kind of have to be careful about how you bet,” he said.
Many states across the country have begun to gradually reopen their economies, but things aren’t back to where they once were. Many establishments have occupancy limits, so restaurants, for example, can only be at partial capacity, or retailers are open, but they’re only doing curbside pickup. Moreover, plenty of people are still very scared of contracting the novel coronavirus, and they’re just not eager to crowd into movie theaters, gyms, or bars.
According to a recent survey from Bankrate, 55 percent of Americans think it’s too soon to reopen the country’s economy, and 43 percent say that they plan to shop in public less than before. Most Americans say it will be at least a month before they feel comfortable going back out, and 13 percent say they wouldn’t feel comfortable until there’s a vaccine or the virus has been contained. There’s a partisan divide to it — Democrats are more hesitant about the economy reopening than Republicans — and there are some people who say they’ll get back to participating in the economy like before. But that’s still not total participation from everyone, meaning different not the same.
According to Bankrate’s survey, about one-third of Americans say they’d be comfortable visiting a local business within a month of restrictions being lifted. “But even if it’s one-third, you have to think about how that affects the margin,” Hamrick said. “You don’t have to have 100 percent for it to be negative.”
As Vox’s Matt Yglesias recently wrote, put simply, reopening the economy won’t save the economy. Even before the shutdowns, restaurant bookings fell off a cliff. The airline industry has taken an enormous hit, and people can still travel. Same goes for hotels. Per Yglesias:
The problem is a question of fear. Americans fear spreading or contracting infection, so much so that they’ve overwhelmingly participated in social distancing measures. They tell pollsters by wide margins that they fear lifting those restrictions too soon much more so than too late. They’re willing to stay put even if it harms the economy.
They also fear economic hardship. That’s led prudent people, even those left relatively unharmed by the downturn so far, to delay nonessential purchases, like new cars, appliances, clothes, and other goods.
In an interview with 60 Minutes that aired on Sunday, Federal Reserve Chairman Jerome Powell, when asked about the likelihood of a “V-shaped recovery,” emphasized that the important thing is to get back on the road to recovery at all. He said he thinks that can happen by the second half of the year, but it’s “very plausible” it will take some time for the economy to gather momentum.
“We’re not going to get back to where we were quickly,” he said. “We won’t get back to where we were by the end of the year. That’s unlikely to happen.”
Recovery is going to be a process, and some things will just never be the same.
The labor market will likely take a long time recover — the nonpartisan Congressional Budget Office projects unemployment will still be at about 10 percent by the end of 2021. There’s a lot of friction that happens in the labor market that slows things down, Sasser Modestino explained. Not all the jobs destroyed because of coronavirus are going to come back. Some companies are going to put in place more automation and technology, or they’re just not going to hire as many people back. A food processing plant is going to put in place more machinery, a daycare at partial capacity will bring back fewer employees.
“It’s very unlikely that all of the furloughed workers will be recalled in June, July, August,” Sasser Modestino said.
“The longer you stay shut down, the harder it is to snap back,” said Scott Baker, an associate professor of finance at Northwestern University’s Kellogg School of Management. Investments are slowed or redirected, jobs don’t return, workers lose contact with employers. And as with so many things in the economy, the recovery is unequal — big companies with access to infrastructure and credit have much better odds than small players. “They can weather this a lot easier,” Baker said.
The recovery is also likely to be split across socioeconomic lines — just because Wall Street makes a comeback doesn’t mean everyday Americans will, especially those hit disproportionately hard by the downturn.
“The people who are getting hurt the worst are the most recently hired, the lowest paid people. It’s women to an extraordinary extent. Of the people who were working in February, who were making less than $40,000 per year, almost 40 percent have lost their jobs in the last month or so,” Powell told 60 Minutes.
Jeff Stein at the Washington Post recently reported that President Donald Trump and many of his top advisers are predicting a quick economic recovery. White House economist Kevin Hassett told reporters on Monday he’s been “really positively impressed by how quickly things are turning around.” National Economic Council director Larry Kudlow said improvements in housing and gasoline demand were positive signs. That’s the same Larry Kudlow who a couple of weeks ago said the White House wants to take a “pause” on economic relief to see how things go.
It’s true that not everything in the economy is all doom and gloom, and some elements of the current situation, as Bloomberg’s Joe Weisenthal recently put it, are just weird.
But broadly, if the federal government wants to improve its chances of accelerating the economic recovery, it can. The Federal Reserve has already indicated it is more than willing to continue to use all the tools in its toolbox to keep the country afloat. Congress has passed three major coronavirus-related bills, and last week, House Democrats unveiled their proposal for a fourth.
States and cities have begun to sound the alarm that they are facing serious budget shortfalls. If the federal government doesn’t step in, they’ll have to cut back services and lay off workers, and that will ultimately slow the recovery even more. “We do not want to be adding public employees to an already long unemployment line,” Sasser Modestino said.
The truth is, no one knows what the future holds for the American economy. And it would be great if some treatment or vaccine appeared for coronavirus tomorrow. But hoping for a miracle is not a safe bet — focusing on actionable, tangible solutions is at least more realistic.
“There’s been real economic damage, of course, caused by these restrictions, and no amount of got assistance is going to fix all of that,” Hamrick said. “It’s going to be more of a recovery process than it will be an event.”
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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 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.
