WASHINGTON — As Congress and the White House resume their efforts to agree on a new economic aid package, evidence is growing that the U.S. economy is faltering. And so is concern that the government may not take the steps needed to support hiring and growth.
“We’re in a pretty fragile state again,” warned Nancy Vanden Houten, lead economist at Oxford Economics, a consulting firm. “The economy needs another shot in the arm.”
With unemployment still at a high 11.1% and hiring potentially slowing in July, the economy is likely to weaken further without more government aid, economists say. Few agree with White House economic adviser Larry Kudlow’s assertion on Sunday that the nation is on a V-shaped recovery path, in which the sharp recession that began in February would be followed by a quick rebound.
What’s needed, most economists say, is continued extra aid for tens of millions of unemployed Americans, along with more funding for state and local governments and more grants for struggling small companies, many of which could go out of business.
Yet even with the viral outbreak intensifying and nearly half of Americans whose families have endured a layoff saying they fear those jobs are lost forever, Congress isn’t anywhere close to agreeing on the outlines of a package even as a $600-a-week federal payment to the unemployed has expired.
The debate coincides with worrisome signs about the job market and the economy. The number of laid-off workers who have applied for unemployment benefits has topped 1 million every week for 18 straight weeks. Before the pandemic, that figure never exceeded 700,000. Real-time data shows that Americans’ visits to shops and restaurants have levelled off after having grown in May and June. Air travel fell last week compared with the week before.
As Congress struggles to reach a compromise on a new financial rescue plan, the main sticking point is the supplemental federal unemployment aid, which provides $600 a week on top of whatever benefit each state provides.
The White House wants to replace the enhanced benefit with a payment that would vary by state but would combine with a state unemployment benefit to replace 70% of recipients’ previous income, likely with some cap for high-income earners. On average, state benefits are equivalent to 45% of workers’ former incomes.
Senate Republicans favour reducing the $600 to a flat payment of $200, possibly as a bridge to a 70% replacement system. The flat payment had been adopted in March because most states’ unemployment systems use antiquated software that cannot adjust individual payments using a percentage formula.
The Democratic-led House has already approved legislation that would extend the $600 through January. Research has shown that, counting the $600 a week in federal aid, roughly two-thirds of those out of work are receiving more money from their jobless benefits than they earned at their previous jobs. That conclusion has fueled Republican concerns that the extra aid has discouraged some of the unemployed from returning to work, potentially slowing the recovery.
Many small businesses have said the $600 weekly federal benefit has made it harder for them to fill jobs. But some unemployed people are reluctant to return to work because they fear becoming infected. And others have tried and failed to find any work.
One new finding suggests that the federal jobless benefit hasn’t broadly kept people from going back to work. In a paper released Monday, a group of economists and doctoral students at Yale University found that unemployed people with larger percentage gains in their benefits were no less likely to return to work than those with smaller increases.
When the unemployment rate is as high as it is now, economists generally worry less about disincentives, because so few jobs are available. It’s when unemployment is low and people who are out of work know that jobs are widely available that the disincentive to work would more likely apply.
William Spriggs, chief economist at the AFL-CIO, argued that the 7.5 million jobs that the economy added in May and June suggest that most of the unemployed will take a job offer when unemployment is high, because they know another opportunity may be hard to find.
“This is the last lifeboat leaving, and if you don’t get on it, you’re toast,” Spriggs said. Most workers also prefer the security of a job over a temporary, if generous, benefit, he said.
Jeremiah Spelts is among those who would like to find new work. Spelts, 41, earned more money from his diesel mechanic job, which he lost in June, than on unemployment. He worked in the oil fields in Wyoming until his employer of two years ran through their Paycheck Protection loan from the government and oil prices fell.
Still, the extra $600 has made it possible for him to cover all his bills.
If that goes away, “I would literally start losing things,” he said. “The first to go would be my apartment and utilities.”
On other issues, Senate Republicans have indicated that they oppose further aid to state and local governments, though they support more money for schools. The House Democrats’ bill provides $1 trillion for state and local governments. Both parties support additional funding for small businesses, but Senate Republicans are considering limiting new grants to businesses whose revenue has shrunk at least 50%.
Michael Strain, an economist at the right-leaning American Enterprise Institute, says he supports reducing the extra benefit to roughly $200 a week. But says that the money saved from that cut should be pumped back into the economy. He favours more aid for state and local governments to prevent them from making any further layoffs, and more funds for small businesses.
“The goal is to support the economy and support consumer spending, without disrupting work incentives,” Strain said.
But Scott Shane, an economics professor at Case Western Reserve University, said he thinks aid should focus more on the unemployed than on small businesses, because many companies may not survive, particularly those involved in in-person services such as restaurants, bars and hotels.
The benefit of keeping a restaurant open, for example, is limited, even if it pays all its employees, Shane said. It won’t order food or new equipment from its suppliers, which, in turn, have to cut jobs. And there’s no way to know at this point when restaurants and other in-person businesses will reopen.
In fact, the potentially open-ended nature of government aid keeps Shane up at night. Congress approved a $2 trillion package in March. The aid Congress is considering now will likely top $1 trillion.
“Are we going to do this twice more every six months going forward?” he asked. ”You can’t just borrow forever.”
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.
