The US economy shrank by a 32.9% annual rate in the April-to-June quarter as the country grappled with cut backs in spending during the pandemic.
It was the deepest decline since the government began keeping records in 1947 and three times more severe than the prior record of 10% set in 1958.
Reduced spending on services such as healthcare drove the fall.
Economists have said they expected to see the sharpest drop in the second quarter, with recovery thereafter.
But as virus cases in the US surge and some areas re-impose restrictions on activity, the rebound is showing signs of stalling.
More than 1.4 million people filed new claims for unemployment last week, up slightly from the prior week for the second week in a row. Other data points to spending cuts and falls in confidence in July.
Job losses
Jerome Powell, the head of America’s central bank, on Wednesday warned of renewed slowdown, describing the downturn as the “most severe in our lifetimes”.
He urged further government spending to help American households and businesses weather the crisis.
That call was echoed by other business leaders on Thursday as the figures brought into focus the scale of the economic crisis facing the country.
“The staggering news of the historic decline of the gross domestic product in the second quarter should shock us all,” said Neil Bradley, chief policy officer at the US Chamber of Commerce, a business lobby group. “This jarring news should compel Congress to move swiftly.”
The International Monetary Fund has predicted that global growth will fall by 4.9% this year. On Thursday, Germany reported a record quarterly decline of 10.1%, while Mexico’s economy also reported a double digit contraction.
Compared with the same quarter a year ago, the US economy contracted 9.5%. Exports and imports were both down more than 20% from a year ago, while consumer spending – the main driver of the US economy – fell 10.7% year-on-year.
Empty pockets
The US has lost nearly 15 million jobs since February, despite strong hiring in May and June. The US census estimates more than half of American adults live in households that have seen incomes cut since the pandemic.
Economists warned it will take years for the US to recover from the devastation.
“Even when the economy saw rapid bounce-back in May and June, the Covid-19 economic shock inflicted so much damage in earlier months that the net result was an economic catastrophe for the second quarter,” wrote Josh Bivens, director of research at the Economic Policy Institute.
“The fact that initial jobless claims have risen for a second week is worrying and underscores that the nascent consumption recovery is at risk,” said Madhavi Bokil, vice president of Moody’s Investors Service.
At the Bean Post Pub, in New York City, owner Anthony LoPorto said he continues to struggle to fill up his tables and is worried about what the autumn and winter will bring.
“I don’t believe in quick bounce-back at all,” he said. “There’s just not enough money in people’s pockets and not enough want in people’s spirits.”
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.
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.
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.
