WASHINGTON — President Joe Biden has inherited a badly damaged economy pulverized by the pandemic, with 10 million fewer jobs than a year ago and as many as one in 6 small businesses shut down.
Yet there are also signs of resilience and recovery that suggest the prospect of a rebound, perhaps a robust one, by the second half of his first year in office. Despite the bleakness of the economic landscape, Biden by most accounts faces a less daunting challenge than he confronted as vice-president under Barack Obama more than a decade ago in the depths of the Great Recession.
The hardships inflicted by the pandemic recession have been deep but concentrated in a few extremely hard-hit sectors and harshly unequal. Much of the economy, particularly housing and manufacturing, has held up surprisingly well compared with previous recessions. People fortunate enough to keep their jobs — disproportionately affluent Americans — have bulked up their savings. They could be poised to unleash a spending boom later this year once vaccines have been more broadly distributed.
There are also signs that the job market, for all its deep losses, is enduring less permanent harm than it has in the past and might be set up for a fast hiring recovery.
Still, for now, many signs are dreary: Consumers have retrenched, and months of job gains have turned to losses. New applications for unemployment benefits remain shockingly high 10 months since layoffs first spiked last March. And the human toll of the pandemic recession, from depressingly long food-bank lines to apartment evictions, has yet to show much improvement.
All of which helps explains why Biden saw the need last week to propose another mammoth federal rescue aid package — a $1.9 trillion plan to end what he called “a crisis of deep human suffering.”
Here is a closer look at the economy the 46th president is confronting:
JOBS: MORE LOSSES, LESS SCARRING
The nation has regained more than half the 22 million jobs that were lost to the pandemic in March and April. But hiring has weakened for six straight months. In December, it actually turned negative, with the loss of 140,000 jobs.
Employers may still be cutting jobs because viral cases remain rampant, cold weather is restricting outdoor dining and other activities and consumers are avoiding in-person services, from hotels to airports to retail shops. With the unemployment rate at an elevated 6.7%, a shortage of hiring is prolonging the pain for people out of work.
A major concern for economists is what they call “scarring” in the job market — long-term and permanent job losses that detach people from the job market and diminish their skills and professional connections. This trend tends to make it harder to reabsorb the unemployed into the economy once it recovers.
Here the evidence is mixed: The number of unemployed who say their job losses are permanent — and therefore unlikely to return even when the economy rebounds — has jumped to 3.4 million, more than double the pre-pandemic level. But it appears to be levelling off: The number fell in December and is little changed from August. By comparison, permanent job losses peaked at 6.8 million during the Great Recession in 2008-2009.
And the ranks of those unemployed for 15 weeks or longer has tumbled from more than 8 million in August to 5.5 million last month. Those figures hold out hope that the unemployment rate will fall fairly quickly as growth accelerates.
CONSUMERS PULLING BACK, FOR NOW
The raging pandemic took a fresh toll on the economy over the holiday shopping season, with sales at retail stores falling for three months in a row. Sales at restaurants and bars tumbled 4.5% in December and collapsed by one-fifth for 2020 as a whole.
There are early signs, though, that $600 checks for most Americans that were authorized in last month’s rescue aid package are beginning to boost spending. Economists at Bank of America said that spending on their debit and credit cards jumped 9.7% for the week that ended Jan. 9 compared with a year earlier. That was up from a 2% year-over-year increase before the $600 payments. And the increase was particularly pronounced for those making below $50,000 a year, who spent 22% more, Bank of America said.
HOUSING SIZZLES FOR THOSE WHO CAN AFFORD ONE
Many Americans who have kept their jobs have capitalized on the new work-from-home culture, becoming first time homebuyers or moving into larger digs. Builders broke ground in December on the most new homes since 2006. Home sales are running about 25% above year-ago levels. Four-fifths of construction jobs lost in the pandemic have returned, a much faster rebound than employment overall.
The housing boost has also lifted home prices nationwide, though the gains have been uneven. An analysis by housing website Zillow has found that the number of cities with home prices of at least $1 million surged 17% in the year ending in November. But nearly three-quarters of those gains occurred in subdivisions of nine large coastal metros, such as New York, Los Angeles and San Francisco. That trend has contributed to worsening wealth inequality since the pandemic began.
MANUFACTURING IS SPARED THE WORST, FOR ONCE
Though factory output is still recovering from the initial pandemic-induced shutdowns, for once the nation’s manufacturing workers aren’t among the worst-hit. Manufacturing output rose 0.9% last month, its eighth straight increase. And factories have added jobs for eight months.
In a sign of the industrial economy’s health, the Union Pacific railroad said it shipped 3% more volume in the final three months of the year, compared with a year earlier, its first gain since the pandemic. Even so, both manufacturing output and employment remain below pre-pandemic levels.
Manufacturers have benefited from a shift in spending toward goods — cars, electronics, furniture and the like — and away from travel and entertainment. Some of that pattern will likely reverse should the vaccines succeed in conquering the coronavirus.
A WILLING FEDERAL RESERVE
One more potential tailwind for the Biden economy is a Federal Reserve that has made clear that it plans to keep its benchmark short-term interest rate pegged near zero through at least 2023. Chair Jerome Powell has also said the Fed will keep buying $120 billion in bonds a month until there is “substantial further improvement” in the economy, which most economists expect will last into 2022. The Fed’s bond purchases are intended to keep long-term loan rates low to spur borrowing and spending.
That policy marks a key change for the Fed, which many economists think prematurely raised short-term rates in late 2015 as the economy was still improving and employers adding jobs. That rate increase was motivated by concerns that inflation was poised to accelerate as the unemployment rate fell close to 5%. Yet unemployment eventually fell to 3.5%, with inflation nowhere in sight.
Powell and other Fed officials have stressed that they have learned from that mistake and are now much less concerned about higher inflation and more focused on driving unemployment back down to an ultra-low rate.
Christopher Rugaber, The Associated Press
Source:- 570 News
Economy on track for 'very strong' bounce in late 2021 | RENX – Real Estate News EXchange
“We are not out of the woods yet.” However, the end of the pandemic appears to be in sight, the commercial real estate industry has more data about potential lingering fallouts and when the recovery begins, it is likely to be strong and fast.
Those were key takeaways from Tuesday’s opening presentations at the virtual RealCapital conference, where CBRE’s Paul Morassutti and CIBC World Markets’ deputy chief economist Benjamin Tal provided overviews of the industry and economy.
Tal broke his analysis down into three time periods: The immediate economic impact, the second half of 2021 and the potential for longer-term economic “scarring.” The first two he summed up in short order.
“I believe we are already in the midst of a double-dip recession. The economy as we talk is basically shrinking by one or two per cent in Canada. This is the short term. It’s not great,” he said.
However, “I believe the recovery will be very strong. The second quarter, the spring, will be a transition period and then I am talking about a very strong second half.”
Tal predicted GDP growth of up to six or seven per cent in the second half of 2021. Because relatively few economic sectors have been affected by the pandemic — although those impacted have been hit deeply — he said a recovery can happen very quickly.
Pandemic’s economic impact deep but narrow
The hardest-hit sectors are mainly service-oriented. On the jobs front, those affected have largely been the lowest wage earners, meaning people with higher disposable incomes are banking money for better times ahead.
“The good news is the service industry is very quick to recover,” Tal noted, laying out the basis for his optimism long-term economic “scarring” will be minimal. “This is all about cash.
“For every dollar decline in wages, the Canadian government injected seven dollars into the economy. This is very important. This is the first recession ever where income actually went up. And it went up in a very significant way.”
That bubble of excess savings is about $90 billion and growing, he said.
“You increase your savings. You don’t want to do that, but you are forced to because you cannot spend. So your money is there, your income is there, but you are not spending,” he continued. “(People) are dying to go to a restaurant, but they are not willing to die to do so. So, they are waiting.”
One significant concern is a huge injection of spending into the economy could trigger inflation and higher interest rates.
“Inflation expectations are starting to rise,” he said. “I cannot talk about the economy rebounding by four, five or six per cent without saying that some inflationary pressures will be there.”
Tal called inflation “the No. 1 issue that will impact your business over the next three to four years” but said both the U.S. Fed and the Bank of Canada view it as a short-term issue.
“They are telling you ‘We are going to tolerate that inflation. We are going to allow that inflation to overshoot because we view it as a blip, we view it as a very short-term story’,” Tal said. He believes both central banks will employ strategies to control potential inflation on a longer-term basis.
When consumers do start spending that excess cash, Tal and Morassutti see changes coming to some current trends which affect CRE.
Housing: Sales to stay strong, rents to stabilize
On the housing front, where sales have remained strong despite the pandemic, they both expect rents to also quickly firm up.
“It is true that multifamily fundamentals in Toronto have weakened,” said Morassutti, the vice-chairman of valuation and advisory at CBRE.
“Rents are down and vacancy is up, mainly due to a glut of small condos being added to the long-term rental supply and the disruption to immigration and foreign students. For the most part, we view this as temporary.”
Tal said Canada is underestimating population growth because it is not counting residents repatriating from countries such as Hong Kong, nor is it tracking foreign students whose visas expired but have been allowed to stay under revised government regulations.
“I expect the supply factor in the multiresidential sector will ease and therefore I see some improvement and stabilization in rent,” Tal said. “We are starting to see it right now, also in vacancies.”
Home sales have benefited from the stratified economic impact. A significant group is “not touched financially by this crisis,” mainly in demographics which can afford to purchase homes.
“They are in position to take advantage of low interest rates and that is exactly what they are doing. And that is why the housing market is doing so strongly.”
Higher office vacancy “not cataclysmic”
While the work-from-home situation will continue to some degree, Morassutti said once things return to normal many employees will return to offices, creating shifts in both housing and office trends.
“The future is not binary, it is not one or the other, it is both. It is flexibility,” he said. “The issue is what would, say, a 10 per cent reduction in demand have on long-term vacancy? After all, the retail sector has been completely upended by the movement of just 10 to 15 per cent of sales to online platforms.”
In all of its office projections, Morassutti said CBRE sees vacancy rising. A 10 per cent reduction in office space demand could translate to a vacancy increase of up to 400 basis points, he said.
“Is the office sector becoming the retail sector? The answer is no. Here In Toronto, the real issue over the next few years is new supply. And this shouldn’t come as a surprise since too much new supply coming at the wrong time has always been the office sector’s Achilles heel,” he explained.
“I would also note that we added almost five million square feet of supply in Toronto in 2008 in the midst of the global financial crisis and another six million square feet beginning in 2013 and quite frankly, the market outperformed virtually all vacancy forecasts both times.
“Is it concerning? Yes, of course it’s concerning, but it is not cataclysmic.”
Vancouver and Toronto still have North America’s lowest office vacancy rates, with Ottawa and Montreal also in the top five.
Retail, industrial outlooks
The outlook is similar for hard-hit sectors of retail.
“We would reiterate the view we have held for some time,” Morassutti said.
“The sector is heavily bifurcated with secondary assets bearing a disproportionate share of the operational pain. Some retail assets have fared quite well, notably grocery-anchored centres where you have a strong concentration of essential retailers.”
Retail, particularly hospitality and entertainment, will be a key benefactor once the pandemic eases.
“Many Canadians are sitting on tons of cash and there is a lot of pent-up demand. There are good-news stories in the retail sector.”
Industrial remains a good-news story and Morassutti said the growth potential is wider than just e-commerce, distribution and warehousing.
“For anything logistics- or warehouse-related, we think there is ample runway,” he noted. “But the entirety of the industrial investible universe is not just logistics or distribution centres. A lot of it is manufacturing, a lot of it is small-bay, multi-tenant. A lot of it has nothing to do with the e-comm tailwind that everyone points to.”
This dovetails with an expected expansion of the life sciences sector, which is increasingly seeking office, R&D and manufacturing space.
“We fully expect this sector to follow a similar trajectory that we have witnessed in the U.S., albeit on a smaller scale,” he said.
Challenges remain, but outlook “looks good”
Over the mid- to long-term, Morassutti said challenges remain, but CBRE remains bullish on real estate.
“In a world where there is $18 trillion of negative-yielding debt, the yield provided by real estate looks good,” he said.
“In our opinion, geopolitical stability will be rewarded, transparency will be rewarded, stable banking systems, thoughtful immigration policies and economic growth will be rewarded, resiliency will be rewarded.
“The fastest-growing city in North America is Toronto and many other Canadian cities are on that list. Canadian employment growth is expect to double the G7 average over the next few years.
“So taking all of that into account, we think Canada stacks up very well.”
Material stocks drag TSX lower
* The materials sector, which includes precious and base metals miners and fertilizer companies, lost 1.3% as gold futures fell 0.3% to $1,799 an ounce.
* Miners Dundee Precious Metals Inc and Centerra Gold fell 3.9% and 3.8%, respectively, and were the top drag on the TSX.
* At 09:37 a.m. ET (14:37 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 77.04 points, or 0.42%, at 18,253.05.
* The financials sector gained 0.1% as Royal Bank of Canada and National Bank of Canada topped analysts’ estimates for first-quarter profit.
* The energy sector dropped 0.7%, even though U.S. crude prices were up 1% a barrel, while Brent crude added 1.1%.
* On the TSX, 62 issues were higher, while 150 issues declined for a 2.42-to-1 ratio to the downside, with 24.02 million shares traded.
* The largest percentage gainers on the TSX were printing company Transcontinental Inc <TCLa.TO>, which jumped 2.3%, and National Bank of Canada <NA.TO>, which rose 2.3%.
* The most heavily traded shares by volume were Manulife Financial Corp <MFC.TO>, Suncor Energy Inc <SU.TO>, and Great-West Lifeco Inc <GWO.TO>.
* The TSX posted 12 new 52-week highs and no new lows.
* Across all Canadian issues there were 44 new 52-week highs and six new lows, with total volume of 43.98 million shares.
(Reporting by Amal S in Bengaluru; Editing by Aditya Soni)
Fed to keep policy easy, stay patient as U.S. economy revives – Reuters
WASHINGTON (Reuters) – Amid market expectations the Fed may be forced to tighten monetary policy sooner than expected, top U.S. central bankers delivered a simple message to investors fixated on rising U.S. bond yields and price risks: Do not expect any changes until the economy is clearly improving.
Testifying on Wednesday before the House of Representatives Financial Services Committee, Fed Chair Jerome Powell emphasized the U.S. central bank’s promise to get the economy back to full employment, with little worry about inflation unless prices begin rising in a persistent and troubling way.
“We are just being honest about the challenge,” Powell told lawmakers when asked about Fed projections that inflation will remain at or below the central bank’s 2% target through 2023.
The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” Powell said. The current inflation rate by the Fed’s preferred measure is about 1.3%.
An expected jump in prices this spring, he said, may reflect post-pandemic supply bottlenecks, or a jump in demand as the economy reopens, but nothing to warrant a policy response.
Powell’s remarks led a broad central bank effort to convince the public and particularly bond market investors that it is not going to tighten monetary policy until it is clear people are getting back to work.
Yields on U.S. Treasury bonds have risen recently, with the risk of a potential spike in inflation in focus as the United States expands its coronavirus vaccination program, plans further fiscal spending and moves toward a post-pandemic reopening of the economy.
Financial markets are pricing in a better outlook for the U.S. economy, and “that’s appropriate,” Fed Vice Chair Richard Clarida told the American Chamber of Commerce in Australia, adding he had become more bullish himself in recent months.
What that does not mean, he said, is any imminent change to the Fed’s near-zero setting for short-term interest rates, or its bond-buying program.
“We to a person are going to be patient, we are going to be very careful, and we are going to be very, very transparent of our intentions well in advance of any decision we might make in the future,” Clarida said.
Clarida said he sees inflation rising above 2% in the spring but coming back down to about that level by year’s end.
Talk about a possible market “taper tantrum” in response to a change in the Fed’s bond-buying program is “premature,” Clarida said. A taper tantrum refers to a rapid run-up in bond yields based on changes in market expectations for Fed policy.
“We have a deep hole, there’s still a ways to go, and I think that settings of monetary policy are entirely appropriate not only now but, given my outlook for the economy, for the rest of the year,” he said.
‘FRONT-RUNNING THE FED’
While some observers believe the Fed may need to remove crisis-era policies sooner than expected, that argument ignores the Fed’s new jobs-first framework, said Tim Duy, chief U.S. economist with SGH Macro Advisors.
“If we try to force the Fed into the old framework, we will be front-running the Fed. The Fed will not validate such front-running,” Duy wrote of Powell’s appearances this week before House and Senate committees. “The Fed intends to maintain easy policy until the data pushes it in another direction and the Fed does not expect that to happen for a long, long time.”
The Fed has said it plans to keep buying $120 billion a month in U.S. government and government-backed securities “until substantial further progress has been made” toward the Fed’s maximum employment and inflation goals.
With the inflation target a long way off, Fed officials have focused on what they see as a major gap in the labor market as well – a scar that goes well beyond the 6.3% headline unemployment rate to include concerns about disproportionate joblessness among minorities and the exodus of women from the labor force.
In recent weeks, Powell, Clarida and others have used an alternate measure of around 10% that includes, for example, those who have left the labor force in recent months, and even that may fall short of the damage to workers the Fed hopes to repair.
Powell, who testified in Congress as part of his mandated twice-a-year appearances on Capitol Hill to provide updates on the economy, said the Fed needed to see tangible progress before shifting gears, not just anticipated improvement, and not premature bets from the bond market.
“We are not acting on forecasts,” Powell said. The policy “is what it sounds like – incoming actual data that sees us moving closer to our goals.”
Reporting by Howard Schneider and Ann Saphir; Editing by Peter Cooney
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