Democrat Joe Biden’s victory in the presidential race will provide a boost to a U.S. economy battered by the COVID-19 pandemic as his bold spending plans and stauncher support for trade and immigration more than offset the drawbacks of new taxes and regulations, top economists say.
Biden’s blueprint will bring back the 11 million jobs and $670 billion in annualized gross domestic product wiped out – and not yet recovered – in the crisis more rapidly than if President Trump had won a second term, analysts say.
“Biden’s policies are the right ones to address the economic crises created by the pandemic,” says Mark Zandi, chief economist of Moody’s analytics. “With such high unemployment, low inflation and zero interest rates, Biden’s proposal to go big on government investment will get us back to full employment fastest. His policies are also targeted to help low- and middle-income households hit hardest by the pandemic.”
Yet the scope of the economic benefits delivered by Biden’s agenda hinges on whether Republicans keep narrow control of the Senate, as now seems likely, or Democrats gain a slim edge. The outcome is uncertain amid ongoing vote tallies in local races and final results may not be clear until early next year because of runoff races.
A Biden presidency and GOP Senate would mean a smaller economic boost than a sweep that hands a slight majority to Democrats. Under the former scenario, the economy would grow an average 3.5% a year and generate 11.6 million jobs during Biden’s four-year term, according to Moody’s. That would be just modestly better than average growth of 3.2% and 9.8 million new jobs under the status quo – a second Trump term with the current split Congress, Zandi estimates
If Biden could work with a Democratic-controlled Senate, the economy would grow more vigorously – an average 3.8% a year, creating 14.1 million new jobs, according to the Moody’s analysis. The nation would return to full employment by late 2022, a year earlier than under a Biden presidency and Republican Senate, Zandi reckons.
Biden has voiced support for a robust relief measure that includes another federal bonus to weekly unemployment benefits, more aid for struggling small businesses and financially distressed states, and another round of stimulus checks to most households.
The big question: Which party has the majority in the Senate? Last month, the Democratic House passed a $2.2 trillion package while the Republican Senate has favored a $500 billion plan.
If Republicans keep control, lawmakers likely would approve a $1.5 trillion stimulus, possibly late this year, according to Moody’s Analytics and Oxford Economics. If the Democrats wrest control, Zandi expects a $2 trillion package that could match the $600 jobless aid provided to unemployed Americans earlier this year instead of a reduced amount.
But economist Nancy Vanden Houten of Oxford Economics believes even a Democratic Senate would opt for a $1.5 trillion measure to preserve space for other spending initiatives.
Biden longer-term spending
Biden is proposing $7.3 trillion in new spending over 10 years, including upgrading the nation’s roads, bridges and highways; building a clean energy economy; investing in research and development to bolster manufacturing; ensuring the government and its contractors buy American products; providing tuition-free community college; ensuring access to affordable childcare and universal preschool; and providing aid for Americans to buy or rent homes.
The flurry of programs will create new economic output, generate millions of jobs, help workers better prepare for high-skilled positions and increase the nation’s productivity, or output per worker, Zandi says.
If Democrats narrowly win the Senate but Republicans can block major legislation with 40 votes, Senate Democrats will have to compromise with Republicans, likely trimming the $7.3 trillion blueprint to about $4 trillion, Zandi says. Oxford economist Gregory Daco foresees a more dramatic cut to about $3 trillion.
And if Republicans keep Senate control, just a sliver of the proposals likely would pass, with GOP lawmakers perhaps agreeing to some infrastructure and social service spending in exchange for middle-class tax cuts, Zandi says.
To help pay for the massive outlays, Biden plans to raise taxes by about $4 trillion over the next decade. He proposes eliminating loopholes for individuals earning more than $400,000; subjecting incomes above $400,000 to the 12.4% Social Security payroll tax; and phasing out itemized deductions at incomes of $400,000.
He also wants to increase the corporate tax rate from 21% to 28%, and tax capital gains and dividends at ordinary rates for incomes above $1 million.
Under a slim Democratic majority in the Senate, Zandi figures Republicans would oppose the individual tax hikes and only the corporate tax increase would pass. Daco thinks Republicans would rebuff the expanded payroll tax and agree to bumping up the corporate tax rate to just 24% instead of 28%.
New taxes likely would ding business profits and discourage some investment, damping economic growth, Zandi says. Oxford, however, says the effects on business activity should be “negligible.” And there should be just limited impact on high-income households, who can more easily tap savings and investments to maintain their spending, Zandi says.
Both Zandi and Daco also figure Biden would delay any tax hikes to later in his term, after the economy is well on the path to recovery.
And if Republicans keep their Senate majority? Don’t expect any tax increases, the economists say.
Biden doesn’t need Congress’s approval to reverse a cascade of Trump executive actions, and economists say that’s precisely what he will do. Those include a ban on travel from several Muslim-majority countries and a sharp reduction in the annual cap on the number of refugees permitted in the U.S., Oxford Economics says. Biden also supports sweeping immigration reform, which likely would boost the number of migrants entering, and staying in, the country.
Zandi also expects a looser policy on H-1B visas for high-skilled foreign workers.
All told, average annual immigration to the U.S. likely would slowly climb back to about 1 million after falling to about 750,000, the economists say. That would boost the population and labor supply, increasing consumer spending, productivity and economic growth, they say.
Biden on trade
Biden has taken a tough stance on trade with China and wouldn’t immediately lift the $360 billion in tariffs Trump slapped on Chinese imports, Daco and Zandi say. But unlike Trump, Biden has said he wants to rally U.S. allies to confront China. And while Trump almost certainly would have escalated the trade war, Biden likely would remove some of the tariffs, perhaps the most recent wave, Daco says. Zandi believes all the levies will be gone by 2023.
That would eliminate a tax on American shoppers who buy Chinese imports, bolstering consumer spending. And it likely would prompt China to remove the retaliatory tariffs it has levied on American shipments to that country, juicing U.S. industrial production and exports.
Biden has said he’ll roll back much of Trump’s cuts to regulations, especially environmental rules for the power and auto industries, as he ramps up a plan to address climate change and promote clean energy.
Daco says new regulations likely would discourage some business investment and hiring.
“The oil and gas sector could see a rough ride with the imposition of new, onerous regulation,” says economist Troy Ludtka of research firm Natixis.
Zandi, however, says there’s no evidence that regulations have such negative effects on business activity.
Minimum wage
Biden supports a Democratic proposal in Congress to raise the federal minimum wage from $7.25 an hour to $15. But with just a slim Senate majority, Democrats would not be able to overcome a filibuster.
That likely would mean no minimum wage hike or a small bump that won’t have a meaningful impact, Zandi says. And a Republican Senate would be highly unlikely to approve a bump in base pay, Zandi says.
The economic effects of a minimum wage increase are mixed. About 30 million, mostly lower-income households would benefit from higher pay, increasing their spending power, Oxford Economics says.
At the same time, that economic gain could be offset as some businesses hire fewer workers and pass their higher labor costs to consumers, hurting consumption, Oxford says. Some businesses also could replace workers with technology, the research firm says.
Several states already are gradually raising their pay floors to $15, and dozens of cities and counties, along with corporations such as Amazon, are already there. A base pay increase to $15 would have little negative impact if it occurs gradually and follows market trends, Zandi says.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
