(Bloomberg) — The White House expects the US economy to cool markedly in 2024 and inflation to remain stubbornly, if modestly, above the Federal Reserve’s target.
President Joe Biden’s proposed budget for fiscal year 2025, released Monday, assumes economic activity will increase 1.7% in calendar 2024, well below the 2.1% median forecast of economists surveyed by Bloomberg.
Following a surprisingly strong 2023 with 2.5% growth, most forecasters expect a slower pace this year as high interest rates continue to pinch the economy. Projections for the budget were finalized in November, before the robust 2023 GDP figures were known.
While the growth projections fall short compared to the Bloomberg survey — which included responses from 72 economists — one of Biden’s top economic aides said that the administration expects higher growth than many other forecasters do when looking five to 10 years out.
“That’s because we include the pro-growth effects of our policies, including investments in human and physical capital, along with affordable child care,” Jared Bernstein, chair of the White House Council of Economic Advisers, said on a call with reporters.
Each spring, the president and his staff lay out a proposed budget for the fiscal year, which runs from Oct. 1 to Sept. 30. It’s widely considered dead on arrival at Congress — as Republicans control the House — which holds the ultimate authority over taxing and spending in the US.
But it does serve as an election-year guide to what the Biden administration’s priorities would be if he’s re-elected and Democrats can secure control of Congress in November. If the Biden budget became law, for example, parents could get an increased child tax credit and homebuyers a tax credit worth $9,600, corporate taxes would rise and billionaires would be charged a minimum tax rate of 25%.
Inflation, Unemployment
Officials were also slightly more pessimistic when it comes to inflation, expecting the consumer price index to average 2.9% in 2024 compared to 2.7% in the Bloomberg survey. Neither forecast sees the CPI reaching the Fed’s 2% goal in the next two years, though policymakers base that on a separate index that has historically run slightly lower than the CPI.
The projections for unemployment were roughly in line with economists’ expectations, rising to 4% this year and next.
Compared to earlier White House projections for 2024, the administration now expects much higher borrowing costs. A year ago, they expected three-month Treasury bills to average 3.8% in 2024, and 10-year notes at 3.6%. That proved overly optimistic.
The administration now anticipates those rates to average 5.1% and 4.4% this year, respectively.
Higher rates, driven by the Fed’s quest to stifle inflation, have already bloated federal outlays meaningfully in the past year and are expected to contribute significantly in coming years. The weighted average interest rate on outstanding US interest-bearing government debt was 3.2% at the end of February — the highest since May 2010 and more than 1.6 percentage points higher than its low point in January 2022.
Monday’s projections show that the US will pay $4.7 trillion in real net interest from 2025 to 2034. Interest as a percent of GDP is expected to double from 0.7% this year to 1.4% by 2032.
That will squeeze other programs in the federal budget. Beginning in 2026, interest payments will likely take a larger slice of budget outlays than the military or non-defense discretionary programs.
Overall, the White House projections show annual fiscal deficits sustained above $1.5 trillion over the next decade, with $2 trillion for 2033. The deficit as a share of gross domestic product is forecast to average 4.6% of GDP from 2025 to 2034.
Bernstein defended the deficits by focusing on a measure that Treasury Secretary Janet Yellen has touted as a better way to gauge the sustainability of the nation’s debt burden: the cost to service the debt as a percentage of GDP when adjusted for inflation. That measure is expected to remain below 2% for the next 10 years.
Bernstein called that “well within the historical range,” and “a positive indicator of fiscal responsibility.”
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.
