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Biden’s spending plans collide with a resurgent U.S. economy – POLITICO

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President Joe Biden is pitching his $2 trillion infrastructure proposal as the “largest American jobs investment since World War Two,” a plan that will put millions of people back to work as the country emerges from the coronavirus crisis.

The economy, meanwhile, is showing signs of recovering on its own.

More than 916,000 Americans returned to work in March, the Labor Department reported on Friday, far surpassing consensus expectations and marking the biggest jump in employment since the summer as Americans get vaccinated and more states and cities allow businesses to reopen. The overall unemployment rate ticked down to 6 percent.

It’s the latest in a series of reports this week showing a resurgent economy, with consumer confidence jumping to levels not seen since the start of the pandemic and manufacturing activity surging to its highest peak in nearly four decades. The S&P 500 also closed the week at a record high. Together, the numbers signal the U.S. is well on its way toward a revival, one that’s widely expected to reach record levels of growth later this year.

And that in turn has blunted one of the central pillars of the Biden administration’s argument as to why the sprawling infrastructure plan is so sorely needed, even after $1.9 trillion in relief money passed just last month — that “it’s about jobs,” as White House press secretary Jen Psaki put it this week, and “the first part of his plan toward recovery.”

Most lawmakers in both parties agree, however, that a major investment in the country’s infrastructure would be well worth it, a step Presidents Barack Obama and Donald Trump both tried and failed to take. But pitching trillions more in spending as necessary to bring back jobs could become a harder argument to make as the economy looks poised to get there on its own.

“Spending at a much smaller level, but better targeted, would have better bang for the buck,” said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “We are wasting far too much of these dollars in areas that frankly aren’t related to the recovery.”

Biden sought to rebut those concerns Friday, emphasizing that while the March jobs data was promising, the economy still has a long way to go.

“Yes, we made progress by starting to build an economy from the bottom up and the middle out. And yes, the American Rescue Plan is laying the foundation for that economy,” Biden said at the White House. “But we still need the American Jobs Plan to build on that foundation to build this country back better.”

The White House’s argument could ring hollow in particular to Republicans and possibly even some centrist Democrats who have begun to try to tap the brakes over the eye-popping levels of cash being pumped into the economy. Congress passed roughly $5.4 trillion in emergency aid measures in less than a year, and the White House is putting another $2 trillion to $4 trillion on the table now.

“I don’t see much of a stimulus or jobs argument going very far, even as some try to make it,” said Brian Riedl, a senior fellow at the right-leaning Manhattan Institute. “The economic outlook is strong for the second half of the year. And it would have been strong without the next stimulus bill.”

The infrastructure package’s supporters maintain that while some further stimulus would still benefit the economy — no one in the administration wants to repeat the sluggish “jobless recovery” that followed the Great Recession — the broader objective is to strengthen the country’s infrastructure, making it more resilient against the effects of climate change while expanding access to clean water and broadband.

And that goal is worth pursuing even in spite of the record levels of cash Congress has already appropriated in the last 12 months, proponents say — especially given the current low interest rate environment.

“We’re not going to go fix 10,000 bridges just to put people to work. We’re going to fix them because those 10,000 bridges need to be fixed,” said Rep. Don Beyer (D-Va.), who leads the Joint Economic Committee.

“Even if there were no stimulus argument to be made, there’s a very powerful argument to be made that the American Jobs Plan is necessary,” he said. “Maybe you could call it something else — you’d just call it the Infrastructure Plan.”

Some economists argue that the infrastructure initiatives are so important that policymakers should be wary of allowing spending fatigue and the strengthening economy to become the reasons it doesn’t get done this year.

Diane Swonk, the chief economist at Grant Thornton, said it would “be a shame” if the earlier relief measures crowded out the infrastructure plans.

“It’s beyond a crisis point, and just because we’re coming out of a pandemic doesn’t mean we shouldn’t do it,” she said. “All the more reason to do it. Because we already know a rising tide does not lift all boats, and you don’t want to mistake the surge associated with unleashing the pent-up demand from the pandemic with long-term sustainability.”

Those long-term benefits are the most important reason to pass the infrastructure plan, supporters say, given that it would invest in projects that will pay for themselves within 15 years and benefit the country for decades after that.

And that extended timeline is the reason most economists have shrugged off any concerns that another multitrillion-dollar influx of cash could be too much, too fast for the broader economy. Much of the money as proposed under Biden’s plan would not be spent for at least a few years after it is signed into law, and it will be doled out over eight years. Biden is proposing paying for it, though over a longer timeline than it will initially be spent, with tax hikes on corporations.

“I don’t think that it exacerbates the overheating concern that I’ve expressed in an important way,” said former Treasury Secretary Larry Summers, a vocal critic of the administration’s $1.9 trillion relief plan, which he warned could funnel too much money into the economy, spark inflation and crowd out other progressive priorities.

But the infrastructure proposal, he said, is not about “short-term injecting money into the economy — but creating the infrastructures and the institutions that success in the 21st century requires.”

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Economy

Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world

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Banks in Canada

Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.

The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.

But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.

In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.

The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.

The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.

OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.

Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.

That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.

The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.

The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.

Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.

($1 = 1.2326 Canadian dollars)

 

(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)

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Economy

Canada Economic Indicators

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Fed to focus on next steps to save economy – BNNBloomberg.ca

The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.

Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1

GDP Growth

Canada's GDP grew by 3% in July as more sectors reopened – CBC.ca

Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2

 

Employment Change and Unemployment

Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3

Consumer Price Index

Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4

International Merchandise Trade

This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5

Teranet – National Bank House Price Index

This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6

RBC Manufacturing Purchasing Managers’ Index – PMI

Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7

The Conference Board’s Consumer Confidence Index

The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8

Ivey Purchasing Managers Index – PMI

 An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9

Housing Starts

Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10

Home Sales

This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11

Retail Sales

Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12

Building Permits 

The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13

The Bottom Line

The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.

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Economy

Canada adds jobs for fourth straight month in May

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B.C. saw close to 55000 new jobs in Septmber

Canada added 101,600 jobs in May, the fourth consecutive month of gains, led by hiring in the education and health services sector as well as in professional and business services, a report from payroll services provider ADP showed on Thursday.

The April data was revised to show 101,300 jobs were gained, rather than an increase of 351,300. The report, which is derived from ADP’s payrolls data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

 

(Reporting by Fergal Smith; Editing by Alex Richardson)

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