Economy

Last quarter was probably the worst on record for the US economy – CNN

Published

4 years ago

July 28, 2020

The Bureau of Economic Analysis will report just how bad the second quarter was on Thursday, in its first estimate of gross domestic product, the broadest measure of the economy.

Economists polled by Refinitiv expect an annualized decline of 34.1% between April and June. That would be the worst quarter since the BEA began keeping quarterly records in 1947. It would also be more than four times worse than the decline during the 2007-09 financial crisis.

That would confirm what experts have been saying for months: America is in a recession, commonly defined as two straight quarters of economic contraction. Between January and March, the economy contracted by 5%.

A fragile recovery

America shut down around mid-March when the pandemic first swept across the country. April was arguably the worst month of the lockdown, with most of the country under stay-at-home orders, shops shuttered and schools closed. No businesses, from mom-and-pop stores to multinational corporations, were spared the impact of the pandemic.

Since then, business has picked up again, and economists predict GDP will jump sharply in the current, third quarter of the year. The Federal Reserve Bank of New York, for example, predicts an annualized increase of 13.3% between July and September.

But the quality of the recovery is less about how it starts, and more about how sustainable it is in the long-run, said Michael Gregory, deputy chief economist at BMO.

For example, the United States added a whopping 7.5 million jobs in May and June, but still remains down nearly 15 million jobs since February.

While many people are expected to be able to return to work, the pace of the labor market rebound is vital to the recovery. That is because America’s economy relies heavily on consumer spending, and consumers spend less when they are out of work.

“Our concern all along has been that short of a vaccine or herd immunity or clear effective treatment both business and consumer confidence wouldn’t rebound to what they were before. That would be a shadow hanging over consumer spending,” Gregory said.

A lot could still go wrong.

The recovery is fragile, and unfortunately there is plenty that could still upset it. Covid-19 infections are still rising across the country and states are rolling back their reopening plans. Some workers are afraid to return to work, while others can’t because they are caring for family members. On top of that, pandemic government benefits, including expanded unemployment aid, are running out.

Senate Republicans are proposing another $1 trillion pandemic relief package, which would cut the federal boost to unemployment benefits to $200 on top of regular benefits, compared with $600 in previous government relief.

During the pandemic, the additional $600 per week has kept millions of Americans afloat. In some cases, it even paid more than people were earning while they were working.

But some economists and law makers are worried that benefits that are too high might keep workers from returning to the labor market. Policy makers are shouldered with the tricky job to find the right amount of jobless aid so that Americans can live and help rebuild the economy, but are also incentivized to go back to work when possible.

With an unemployment rate still at 11.1% — higher than during the most dire times of the financial crisis — cutting unemployment benefits too much could have serious consequences for consumer spending, which accounts for some two-thirds of US economic growth. The US unemployment rate is expected to fall to 10.3% in the July jobs report due next week.

But experts are worried about the the slowing pace of the jobs recovery.

Last week, initial applications for unemployment benefits ticked up for the first time in 16 weeks, adding to worries about the state of the recovery. This week’s report, which is also due Thursday morning, is expected to show another increase.

Economists think it will take years for US GDP to get back to where it was before the pandemic.

A report from Fitch ratings said Monday that the effect of the coronavirus recession will be felt for years to come, with US GDP in 2025 still more than 3% lower than where it could have been without coronavirus.

— Phil Mattingly contributed to this article.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

9 hours ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

10 hours ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

1 day ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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