People are taking to the streets and the North American economy is in shambles, but you wouldn’t know it by looking at U.S. markets.
Until now, action by the Federal Reserve Board has been wonderful for the richest 10 per cent of U.S. citizens who, according to the central bank’s own data, own 90 per cent of all stocks.
By cutting interest rates to near zero and promising a flood of new money into the economy through quantitative easing, Fed Chair Jerome Powell has U.S. market traders convinced it’s time for renewed exuberance.
The Dow Jones Industrial Average paused in its rise yesterday, but U.S. President Donald Trump seemed thrilled when the Nasdaq market soared to new highs.
Market record as economy slumps
“NASDAQ HITS ALL-TIME HIGH,” crowed Trump in a tweet. “Tremendous progress being made.”
NASDAQ HITS ALL-TIME HIGH. Tremendous progress being made, way ahead of schedule. USA!
But on main street, where businesses are failing, where unemployment has hit double digits, where coronavirus deaths keep climbing and anti-Black racism protesters fill city centres, progress is considerably less obvious. Records are headed in the other direction.
It is well-known that financial markets are not necessarily a good short-term indicator for the wider economy. But as the central bank head made very clear at Wednesday’s news conference, the suffering is far from over for Black and Hispanic low-wage earners.
Just as the Organisation for Economic Co-operation and Development — sometimes described as the rich countries’ economic think-tank — was predicting the worst recession in a century, Powell announced the bank would hold interest rates below 0.25 per cent.
And the consensus view from members of the Federal Open Markets Committee, which advises the Fed chair, was that the central bank was unlikely to hike those rates again until 2022.
It was a point that Powell made emphatically at yesterday’s news conference to an online assembly of reporters.
Not even thinking about it
“We’re not thinking about raising rates,” he said. “We’re not even thinking about thinking about raising rates.”
Asked twice about how he could justify the fact that those continued low interest rates contribute to the soaring wealth of the richest while the poor are thrown out of work, Powell was unwilling to pass judgment.
And asked directly whether there was some way to tweak the system to prevent a widening of the wealth gap, a repeat of what happened following the 2008 economic meltdown, the Fed chair was unable to offer suggestions.
Not only that but one reporter observed that since the Fed intervened with its rate reductions on March 23, every stock in the S&P 500 index had risen in value despite a sharply weakened economy. The reporter asked whether the Fed was worried it had created a market bubble that could pop.
Powell sidestepped the questions, offering instead the same justification as central bankers offered in 2008. Saving the financial system was the first essential step in saving the entire economy, he said, and that required stopping the panic once investors realized the COVID-19 disease would sweep the world.
The Nasdaq, known as the market where many technology companies list, hit another new high on Wednesday. (Reuters)
“From that point forward, investors everywhere in the world, for a period of weeks, wanted to sell everything that wasn’t cash,” Powell said. “So what happened was, markets stopped working.”
Just as in 2008, said Powell, the Fed and others, including the Bank of Canada, had to flood the market with cash as the only way to “restore the markets to function.” And while it is not the Fed’s job to decide asset price levels, he said, he was pleased markets are now functioning once again.
Struggles on main street
Also just as happened 12 years ago, getting the real main street economy working again is a harder task. While sending money to financial markets was quick, getting loans to struggling small businesses has been much more difficult. But eventually low rates should help there too, he said.
“There’s no playbook here,” Powell said. “If we’d had a great idea for changing main street, we would have done it.”
While some businesses try to reopen, the employee entrance at this hotel, a sector which employs many lower wage workers, has little traffic. (Jonathan Ernst/Reuters)
The Fed chair was visibly dismayed by the economic setback, when only months ago, unemployment was at record lows reaching a point where he could see wages starting to rise and even people who had left the workforce were being drawn back in.
Now, he fears it will be two years or more before the economy can begin to replace those lost jobs. Millions will likely never get their jobs back, and most heart breaking, he said, was that the worst suffering has been in low-wage service jobs often held by the least well off.
“Unemployment has gone up more for Hispanics, more for African Americans, and women have borne an extraordinary, a notable, share of the burden,” said Powell.
And while the head of the Federal Reserve said he would use every tool in the central bank’s toolbox to get people back to work, Powell was frank about the things he could not do.
Fiscal spending, tax policy and wealth redistribution are tools that remain firmly in the hands of elected officials should they decide to use them.
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.
