(Bloomberg) — The $900 billion stimulus package agreed to by U.S. lawmakers over the weekend could keep the economy from contracting again, but pandemic-related risks remain if activity doesn’t start to bounce back next year.
The fiscal relief package includes $600 one-time checks to individuals, more funding for the Paycheck Protection Program and a 10-week extension of unemployment benefits, with each week supplemented by a $300 payment. Those measures — which Congress may approve Monday — could help prop up a U.S. economy that’s been deteriorating in recent weeks.
The relief is less than what Democratic Party lawmakers proposed, and President-elect Joe Biden’s administration will likely seek additional stimulus when he takes office in January.
Initial jobless claims are at a three-month high, November’s payroll gains were well below expectations and retail sales declined in both October and November. The passage of additional fiscal support, combined with increasing numbers of Americans being vaccinated, means the economic recovery should be off and running by mid-2021, Mark Zandi, chief economist at Moody’s Analytics, said in a note.
The stimulus deal “has come just in time to forestall a double-dip recession,” Zandi said. The package will add approximately 1.5 percentage points to annualized real GDP growth in the first quarter of 2021, and about 2.5 percentage points to next year’s growth, he said.
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said on Bloomberg Television that the relief package “should be very helpful for the economy,” and estimated that it could boost GDP by as much as 3% over time.
Still, many of the protections expire in the first quarter, meaning additional relief could be needed by March. While the Covid-19 vaccine rollout is expected to pick up by spring, the sectors most impacted by the pandemic are unlikely to approach full reopening until later in the year, Andrew Husby, economist at Bloomberg Economics, said in a note.
What Bloomberg’s Economists Say…
“The package directs aid where it is needed most. Along with a quicker-than-expected start to vaccine rollout, this is a key reason our 2021 outlook has been unchanged (3.5% expansion in gross domestic product for 2021), despite the package being slightly smaller than the baseline we have carried since the summer.”
— Andrew Husby, economist
For the full note, click here
Lawmakers had been struggling for months to reach a deal, and for many Americans the new stimulus package didn’t come soon enough. The number of Americans out of work for the long term has more than doubled since August, and an increasing number of businesses are losing revenue or even closing permanently.
“This stimulus really is a stopgap, it’s come really late and it’s a little lame, honestly — it’s not as big as I would have liked,” Megan Greene, a senior fellow at Harvard’s Kennedy School of Government, said on Bloomberg TV. “If we’d waited until the new administration had come into power, particularly if the Republicans control the Senate, then it probably would have been even smaller, so I think this was probably the best that we realistically could have hoped for.”
The rescue package doesn’t include aid to state and local governments, many of which are facing huge budget shortfalls. Without funding, they’ll be forced to cut jobs, programs and services at an inopportune time for the broader economy, Zandi said.
The passage of new fiscal relief will largely depend on the outcome of the Georgia runoffs, which will determine which party controls the Senate, said Jennifer Lee, senior economist at BMO Capital Markets.
Ultimately, the most important driver of the recovery will be increased economic activity, which is largely dependent on an effective vaccine, Lee said. While the stimulus package “kicks the can down the road” until March, there could still be challenges this winter, she said.
“There are going to be tons of negative headlines in the first quarter — seasonally it’s weak anyway — but because of these lockdowns you’re going to see further weakness,” she said.
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.
