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US economy shrank 3.5% in 2020 after growing 4% last quarter – OrilliaMatters

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WASHINGTON — Stuck in the grip of a viral pandemic, the U.S. economy grew at a 4% annual rate in the final three months of 2020 and shrank last year by the largest amount in 74 years.

For 2020 as a whole, a year when the coronavirus inflicted the worst economic freeze since the end of World War II, the economy contracted 3.5% and clouded the outlook for the coming year. The economic damage followed the eruption of the pandemic 10 months ago and the deep recession it triggered, with tens of millions of Americans left jobless.

Thursday’s report from the government estimated that the nation’s gross domestic product — its total output of goods and services — slowed sharply in the October-December quarter from a record 33.4% surge in the July-September quarter. That gain had followed a record-shattering 31.4% annual plunge in the April-June quarter, when the economy sank into a free-fall.

The outlook for 2021 remains hazy. Economists warn that a sustained recovery won’t likely take hold until vaccines are distributed and administered nationwide and government-enacted rescue aid spreads through the economy — a process likely to take months. In the meantime, millions of Americans continue to struggle.

On Thursday, for example, the government reported that while applications for unemployment benefits declined last week, they remained at a historically high 847,000, evidence that companies keep cutting jobs as the pandemic continues to rage. Before the virus erupted in the United States in March, weekly applications for jobless aid had never topped 700,000, even during the Great Recession.

Even as the economy shrank last year, the stock market managed to rise sharply, with the S&P 500 index gaining 16%. The disparity between the two reflected a time-tested adage: The stock market is a forward-looking indicator, with investors focused on prospects for future corporate profits and economic health rather than on the current state of the economy. So even as the economy was sinking last year, investors looked ahead to hopes for vaccines and government aid and to solid company profits, especially among tech companies, which drove last year’s gains.

The pandemic’s blow to the economy early last spring ended the longest U.S. economic expansion on record — nearly 11 years. The damage from the virus caused GDP to contract at a 5% annual rate in last year’s January-March quarter. Since then, thousands of businesses have closed, nearly 10 million people remain out of work and more than 400,000 Americans have died from the virus.

The government’s report Thursday was its first of three estimates of growth last quarter; the figure will be revised twice in the coming weeks. The report showed that consumer spending, which accounts for about 70% of the economy, slowed sharply last quarter to a 2.5% annual gain from a 41% surge in the July-September quarter.

Last quarter’s economy was instead driven in part by business investment and housing, which has been a star performer during the past year, reflecting record-low mortgage rates and a demand for more household space. Housing grew at a sizzling 33.5% annual rate, business investment at a 13.8% rate. Government spending, though, shrank at a 1.2% rate last quarter. State and local governments have started to resort to layoffs in response to falling tax revenue.

The estimated drop in GDP for 2020 was the first such decline since a 2.5% fall in 2009, during the recession that followed the 2008 financial crisis. That was the deepest annual setback since the economy shrank 11.6% in 1946, when the economy was demobilizing after World War II.

The GDP report showed that former President Donald Trump ended his presidency with GDP averaging annual gains of 1% during his four years. That was lower than the 1.6% annual GDP gains during the Obama administration, a period that also included a recession.

In the coming months, as vaccines become widely distributed and administered, growth is expected to revive. But until then, many Americans will struggle as consumers and businesses hunker down and hold back on spending even though the economy will likely keep growing. Gregory Daco, chief economist at Oxford Economics, said he expects growth to weaken in the current quarter to a roughly 2% annual rate.

But Daco foresees a brightening outlook for the rest of this year. His view assumes a widespread use of vaccines, increased government aid from Congress’ approval of at least part of President Joe Biden’s $1.9 trillion relief package and pent-up spending from a savings buildup among higher-income families during the pandemic. A $900 billion rescue aid package that the government enacted late last year is also providing some support.

“The vaccine rollout is essential,” Daco said. “Without an improving health situation, we are not going to get any improvement in the economic situation.”

Daco said he thinks an economic rebound will produce annual growth this year of 5%. Earlier this week, the International Monetary Fund forecast that the U.S. economy will grow 5.1% this year and 2.5% in 2022.

On Wednesday, the Federal Reserve took note of the economic threats. It kept its benchmark interest rate at a record low near zero and stressed that it would keep pursuing its low-rate policies until a recovery is well underway. The Fed acknowledged that the economy has faltered in recent months, with hiring weakening especially in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involved in face-to-face public contact.

Hiring in the United States has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from travelling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.

Mark Zandi, chief economist at Moody’s Analytics, predicts that about 5 million lost U.S. jobs will never return, forcing the unemployed in such industries as restaurants and bars to find work in other sectors.

And many economists warn that without further government financial support, the economy risks succumbing to another recession. They note that much of the aid for individuals from the $900 billion package that was enacted late last year is set to expire in mid-March.

Martin Crutsinger, The Associated Press

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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