Something still feels off in this economy. It’s booming in many respects, with a strong labor market, healthy corporate and household balance sheets, and a lot of consumption. But some, like JPMorgan Chase & Co. CEO Jamie Dimon, are worried we’re seeing the calm before the storm. There are signs things could get gnarly. Inflation is at a 40-year high, shelves are empty, real wages are shrinking and labor is in short supply.
Government and monetary policy will play an important role in how this works out, but those policies are also the biggest risk to US growth going forward.
In their natural state, economies grow more than they shrink. Humans are remarkable for their ability to innovate and their desire to make their lives better. But growth isn’t guaranteed. Many countries have adopted policies that undermined growth. In the early 20th century, for example, Argentina had the same GDP per capita as Canada; now Canada’s per capita GDP is more than five times Argentina’s, in part because of the South American nation’s feckless fiscal and monetary policies and decades of political instability following the Great Depression. Haiti and the Dominican Republic’s economic fortunes diverged after the 1960s. Rich countries have been fortunate to have the right policies — and some luck — that foster growth. Often policies will change after a big shock like the pandemic. Right now, the US economy has a lot of potential, but much will depend on the policies public officials implement.
In the short run, policy makers need to do something about inflation. It was bad policy, in part, that brought about high Inflation in the first place, including excessive stimulus in 2021. Then the Federal Reserve was too slow to respond.
When faced with inflation in the 20th century, the Fed repeatedly caused recessions by coming in too late and too hard. A mild recession may be unavoidable at this point because the Fed got so far behind the curve this time, too. How it manages rate increases in the next few years will determine the course of inflation and the severity of a downturn, if one occurs. The more the Fed miscalculates, the smaller the bullseye gets: Raise rates too high and the economy contracts; don’t go high enough and prices will keep rising and inject more uncertainty into markets — which can cause a recession, too.
Additional risks are coming from fiscal policy in Washington. President Joe Biden says his inflation strategy consists of letting the Fed do its job, fixing the supply-chain bottlenecks and controlling deficits (how he’ll do the last is unclear, since higher taxes or big spending cuts can slow the economy). There’s a chance these policies could help the economy, depending on how they’re executed. But price controls proposed by Senator Elizabeth Warren would only discourage production and create more shortages. Canceling student debt isn’t going to do anything to help inflation, either.
Though a near-term recession would be painful, core aspects of the economy are robust enough that it shouldn’t be too long or deep. Policies that could undermine longer-term growth are far more worrying. The desire to re-shore production, maintain the former administration’s tariffs — or even add more — along with subsidies for domestic production translates to higher prices and less resiliency because there is less trade, which means fewer goods. It also makes US industry less innovative and efficient since Americans don’t need to compete as much with firms in other countries.
Now add to all this the recent antitrust push. Traditionally, the government has gone after firms whose monopoly power harmed consumers. The new fashion is to target firms that get so big they crush any potential competition. Competition is good for growth, and there are legitimate concerns about unfair practices that regulation should address. But the problem with the new antitrust approach is that it often targets firms (at least in the rhetoric we’ve been hearing) simply for being large.
Big is not necessarily bad. In fact, a more global, tech-driven economy creates greater returns to scale and some bigness may be required. Bigger may be necessary in an economy where access to proprietary data and a lot of users is needed to make products better. Bigger can also mean lower costs. Shrinking American firms and depriving them of scale may be another strike against American competitiveness.
The US economy remains among the most innovative and dynamic in the world. It’s still a top destination for global talent and aspiring entrepreneurs. The enduring popularity of the dollar and dollar-dominated assets reflects an economy that is expected to keep growing. But past performance does not guarantee future growth. The right policies can help dig us out of our current predicament, but after that, policy makers just need to get out of the way.
More From Other Writers at Bloomberg Opinion:
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Biden’s Economic Hubris Gives Way to Humility: Karl W. Smith
•
Don’t Wish for Fed to Pause Rate Hikes: Mohamed A. El-Erian
•
Who’s to Blame for a Recession, Biden or Powell?: Daniel Moss
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.”
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.
