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Canada's economy moves into 'recuperation phase' as second-wave impact looms – The Globe and Mail



Canada’s economic recovery continued to moderate as summer wound down, leaving activity still well short of pre-pandemic levels before the second wave of the COVID-19 virus hit, new data from Statistics Canada show.

The agency reported Friday that real gross domestic product (GDP) rose 1.2 per cent in August from July, slightly more than its preliminary estimate of 1 per cent. It was the fourth straight month of growth, as the economy continued its rapid rebound from the lockdowns in the spring aimed at containing the virus, although the pace of the recovery has been slowing after the dramatic effects of the re-openings in May and June.

Statscan also published an advance estimate for September of 0.7-per-cent growth – which, if accurate, would mean the economy expanded by about 10 per cent in the third quarter, consistent with Bank of Canada and private-sector estimates. But that still leaves the economy about 4 per cent below its pre-COVID levels.

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With October’s sharp increase in the spread of the virus, both in Canada and abroad, renewed virus-containment restrictions threaten to put the brakes on the recovery.

“The economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research note.

The August GDP gains were led by a continued strong recovery in the service sectors of the economy (up 1.5 per cent), which were more deeply affected by the spring lockdowns and subsequent re-openings, while goods-producing sectors grew a more modest 0.5 per cent. Economists noted that the segments that drove much of August’s gains – services such as arts, entertainment and recreation (up 13.7 per cent) and accommodation and restaurants (up 7.3 per cent) – stand to be the hardest hit in the second-wave containment measures, as authorities focus on reducing contact through indoor gatherings.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter,” Bank of Montreal chief economist Doug Porter said in a research report.

Earlier this week, the Bank of Canada issued new forecasts predicting fourth-quarter growth of only 0.2 per cent quarter over quarter – or 1 per cent annualized – in light of the second wave of the pandemic and the return of some government-mandated closures and business restrictions. Ontario and Quebec have already shut down indoor restaurants and bars in large urban centres where COVID-19 cases are highest, while other provinces are clamping down on indoor gatherings and debating whether additional measures are warranted.

Some economists think the central bank’s forecast is overly pessimistic.

“We suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” said Mr. Porter, who forecast that quarterly growth would top 2 per cent annualized.

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“We think there is still scope for continued rebounds in those sectors not directly affected by the restrictions, so we are pencilling in a much larger fourth-quarter gain of 5 per cent annualized,” said Stephen Brown, senior Canada economist at Capital Economics, in a research note.

But the COVID-19 virus remains a massive wild card in any economic forecast, as a growing number of countries face the prospect of renewed restrictions – while at the same time eagerly looking forward to the growing possibility of a viable vaccine in early 2021.

“We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy, as much will depend on the course of the virus,” TD’s Mr. Thanabalasingam said. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”

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Biden’s Economic Team Suggests Focus on Workers and Income Equality – The New York Times



WASHINGTON — President-elect Joseph R. Biden Jr. formally announced his top economic advisers on Monday, choosing a team that is stocked with champions of organized labor and marginalized workers, signaling an early focus on efforts to speed and spread the gains of the recovery from the pandemic recession.

The selections build on a pledge Mr. Biden made to business groups two weeks ago, when he said labor unions would have “increased power” in his administration. They suggest that Mr. Biden’s team will be focused initially on increased federal spending to reduce unemployment and an expanded safety net to cushion households that have continued to suffer as the coronavirus persists and the recovery slows.

In a sign that Mr. Biden plans to focus on spreading economic wealth, his transition team put issues of equality and worker empowerment at the forefront of its news release announcing the nominees, saying they would help create “an economy that gives every single person across America a fair shot and an equal chance to get ahead.”

Mr. Biden’s picks include Janet L. Yellen, the former Federal Reserve chair, as Treasury secretary; Cecilia Rouse of Princeton University, to head the White House Council of Economic Advisers; and Neera Tanden of the Center for American Progress think tank, to run the Office of Management and Budget. All three have focused on efforts to increase worker earnings and reduce racial and gender discrimination in the economy.

Ms. Tanden said in February that rising income inequality was the consequence of “decades of conservative attacks on workers’ right to organize” and that labor unions “are a powerful vehicle to move workers into the middle class and keep them there.”

The two other nominees to Mr. Biden’s Council of Economic Advisers, Jared Bernstein and Heather Boushey, are economists who have pushed for policies to advance workers and labor rights, and who advised Mr. Biden in his campaign as he built an agenda that featured several longstanding goals of organized labor, like raising the federal minimum wage and strengthening “Buy America” requirements in federal contracting.

Ms. Boushey has also been a vocal advocate of policies to help working families, including providing up to 12 weeks of paid family and medical leave. In an interview last week, Ms. Boushey said such a policy was especially critical during the pandemic, “when lives are at stake.”

William E. Spriggs, the chief economist for the A.F.L.-C.I.O. labor union, hailed the selections, saying in an email on Monday that “we have not had a C.E.A. as focused on the role of fiscal policy and full employment since President Johnson.”

The team has embraced increased federal spending to help households and businesses during the pandemic, a position that was highlighted in an op-ed article that Ms. Tanden and Ms. Boushey wrote with two co-authors in March, urging policymakers to spend big even though it would require borrowing large sums of money.

“Given the magnitude of the crisis,” they wrote, “now is not the time for policymakers to worry about raising deficits and debt as they consider what steps to take.”

Mr. Biden also named Adewale Adeyemo, a senior international economic adviser in the Obama administration, as deputy Treasury secretary.

The nominees, who require Senate confirmation, will be introduced on Tuesday. Another of Mr. Biden’s picks, the former Obama adviser Brian Deese, has been tapped to lead the National Economic Council but was not included in Monday’s announcement.

Mr. Biden’s team includes several labor economists, including Ms. Yellen, who has been a longtime champion of workers and has at times suggested allowing the unemployment rate to run low for a longer period of time without worrying about inflation — an idea some economists thought imprudent but which has since become more widely accepted. While at the Fed, she balanced her preference for a strong labor market with inflation concerns and political constraints.

In the early 2000s, Ms. Yellen was instrumental in persuading the Fed’s policy-setting committee to coalesce around targeting a 2 percent inflation rate instead of the zero inflation rate that Alan Greenspan, the Fed chair at the time, originally favored. The Fed raises rates to slow the economy and offset inflationary pressures, so targeting slightly higher inflation opened the door to longer periods of cheap borrowing that can lead to stronger economic demand and lower unemployment.

Neera Tanden, nominated to run the Office of Management and Budget, has said that labor unions “are a powerful vehicle to move workers into the middle class and keep them there.”
Credit…Lexey Swall for The New York Times

As Fed chair from 2014 to 2018, Ms. Yellen favored a patient approach to policy-setting that weighed concerns that prices might heat up as joblessness dropped against a preference for pulling more workers into the labor market.

In one wonky 2016 speech, she suggested that allowing the labor market to expand without raising interest rates might help to reverse damage by pulling people in from the sidelines and prompting others to look for better jobs. She was criticized for the remarks, and later backed away from such an approach in word if not in deed. She and her colleagues lifted interest rates to fend off inflation pressures, but did so at a very slow pace, prompting criticism. Those rate increases have since been viewed as too aggressive and faulted for prematurely snuffing out a more robust labor market expansion.

Ms. Yellen also walked a careful line when it came to issues like inequality. In one 2014 speech, she suggested that widening income and wealth inequality might be incompatible with American values — “among them the high value Americans have traditionally placed on equality of opportunity” — a remark Republicans criticized.

Much has changed since Ms. Yellen was at the Fed — in ways that could allow her to embrace some of her more labor-friendly instincts if she is confirmed to the Treasury. While the Treasury secretary’s direct economic power is somewhat limited, the position holds significant sway as a fiscal policy adviser to Congress and the president, as well as oversight of tax policy through the Internal Revenue Service.

Inflation, once seen as a real and looming threat, has been low for more than a decade. Inequality, once labeled a political and liberal issue, is increasingly recognized as a real economic constraint by Democrats and Republicans alike.

Yet some progressive groups have raised concerns that Mr. Biden’s team could pivot too quickly to try to reduce the federal budget deficit once the pandemic subsides, citing past comments by Ms. Yellen and Ms. Tanden.

Economists on the left have become increasingly comfortable with deficit spending, and Ms. Yellen has long favored government intervention as a way to get the economy going during times of trouble. But she has also said America’s debt load is unsustainable, and has generally favored taxation as an offset to increased spending.

Mr. Biden, too, has expressed support for borrowing money to aid the current recovery, but sought to offset the cost of other economic proposals — like an infrastructure bill and actions to mitigate climate change — with tax increases on high earners and corporations.

In a 2018 interview at the Charles Schwab Impact conference in Washington, Ms. Yellen said the U.S. debt path was “unsustainable” and offered a remedy: “If I had a magic wand, I would raise taxes and cut retirement spending.” Last year, she described the need to overhaul the nation’s social safety net programs as “root canal economics.”

But Ms. Yellen has made clear that she does not see deficit reduction as a priority during the current crisis and that the federal government should spend what is necessary to weather the pandemic. In July, she testified before Congress with Ben S. Bernanke, another former Fed chair, and called for substantial federal support.

“With interest rates extremely low and likely to remain so for some time, we do not believe that concerns about the deficit and debt should prevent the Congress from responding robustly to this emergency,” she said. “The top priorities at this time should be protecting our citizens from the pandemic and pursuing a stronger and equitable economic recovery.”

Credit…Eric Thayer for The New York Times

Many Republicans, however, have once again begun warning about the deficit and citing mounting debt levels as a reason to avoid another large virus spending package.

Bridging those concerns will fall to both Ms. Yellen and Ms. Tanden, whose role as the White House budget director will put her in the center of fiscal fights with Congress.

Some liberal groups have raised concerns over Ms. Tanden’s 2012 remarks to C-SPAN about potential cuts to safety-net programs as part of a long-term deal to reduce federal debt.

In that interview with the network, Ms. Tanden said that the restructuring of Social Security, Medicare and Medicaid must be “on the table” in conversations about long-term deficit reduction and noted that the Center for American Progress had made such proposals.

But in 2017, as Republicans prepared to approve a $1.5 trillion tax cut, Ms. Tanden showed no desire to return to deficit reduction in a future administration. “The rule seems to be deficits only matter for Democratic presidents,” she wrote on Twitter. “And that rule needs to die now. We should not have to clean up their mess.”

Liberal senators, including Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, cheered the selections of Mr. Biden’s team, including Ms. Yellen and Ms. Tanden. Mr. Brown said on Twitter that Ms. Tanden was “smart, experienced, and qualified” and demanded that Senate Republicans confirm Mr. Biden’s team.

Republicans did not unite in opposition, though when asked about Ms. Yellen, Senator Josh Hawley, Republican of Missouri, criticized her as being a “good example of the corporate liberals.”

“She’s somebody who clearly has done the bidding of the big multinational corporations,” he said. “Her record on trade is astoundingly terrible.”

Liberal economists welcomed the picks. “There are reasons to be hopeful,” said Stephanie Kelton, a professor at Stony Brook University and the author of the book “The Deficit Myth,” which makes a case that budget deficits are not inherently bad.

Ms. Kelton helped with economic agenda-setting during the Biden campaign as a task force member, and said the fact that people like Mr. Bernstein and Ms. Boushey were included among the economic thinkers was a reason to hope that progressive ideals would have a voice at the table. That said, Ms. Kelton said she remained wary that there would be continued attention to deficits and deficit reduction.

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CIBC Economist Predicting Strong Second Half of 2021 for Canadian Economy – Toronto Storeys



Now that we’re in the second wave of the pandemic, a Canadian economist has an optimistic outlook for Canada’s economic recovery and says that the second half of the new year will be “strong” for the country’s economy.

Benjamin Tal, deputy chief economist at CIBC, joined BNN Bloomberg earlier this month to discuss how Canada’s economy will recover in the months to come and said that Canadian businesses have pivoted and the country is significantly better prepared for the months ahead.

READ: 2020 Will Be ‘Banner Year’ for Canadian Housing Market: BMO

However, in light of this sense of optimism, Tal says he believes that the next few months are going to be challenging, especially for small businesses.

“Let’s be clear, it’s going to be a difficult winter,” said Tal, adding, “some small businesses won’t be able to survive… that’s almost a given.”

But there is light at the end of the tunnel as Tal says there are “positives in the negative” in the sense that Canada won’t shut down the economy completely like what we saw happen in March and April.

Tal noted that many businesses “will be able to do okay”  because they will be able to utilize what they’ve established over the past six months, which will help them ride out the winter months.

Looking ahead, Tal says that he believes the second-half of 2021 will be strong for the Canadian economy.

“I think stronger than what the market is currently anticipating,” says Tal, adding, “we have so many forces that will lead to this strong performance in the second half. Clearly, we’re going to have a vaccine and confidence will go up. We know that there’s a huge amount of pent up demand. People are dying to spend and guess what, they’ve got the cash.”

Tal said that as he’s previously discussed, “there is 90 billion dollars of excess cash is sitting on the sidelines, looking for direction. They will find something to do with this cash and it will be utilized in the economy leading to a significant increase in spending.”

“Overall, I believe that we can a significant improvement in the second half of the year because we have the potential to do so, the will to do so, and the ability to do so.”

READ: CIBC Deputy Chief Economist Warns that Housing Market Slowdown is Coming

Tal also said that he believes Canada’s economic recovery will outperform the US early in the new year.

“The prime minister made it very clear: ‘whatever it takes’, and if whatever it takes is more money then there will be more physical money,’ so, therefore, in this sense, we are leading the way, and that’s why I believe Canada will outperform the US early in 2021.”

Tal’s latest outlook follows his previous prediction that a Canadian housing market slowdown is looming.

“Even the governor of the Bank of Canada is telling us, listen, don’t expect any growth basically over the next six months. The party’s over. You can’t have a o% increase in the economy with the housing market continuing to boom,” said Tal.

Tal also added that another factor influencing his forecast is that the damage to the labour market will be “much more significant in terms of the impact of the economy and the impact on the economy.”

“Normally you would see more higher-wage jobs disappearing or at least you would have less job security there. And that’s very, very important,” explained Tal. “So, I believe that this optimism is not actually going to last for too long.”

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Biden Fills Yellen-Led Economy Team, Risks Clash on Budget Chief – BNN



President-elect Joe Biden rolled out the first set of nominations for his economic team on Monday, formally announcing his selection of Janet Yellen to be Treasury secretary, Neera Tanden to lead the Office of Management and Budget and Cecilia Rouse to head the Council of Economic Advisers.

Biden also announced his intent to nominate Adewale Adeyemo, a former senior adviser at BlackRock Inc., to be deputy Treasury secretary. Adeyemo is a Nigerian-born attorney and president of the Obama Foundation.

“As we get to work to control the virus, this is the team that will deliver immediate economic relief for the American people during this economic crisis and help us build our economy back better than ever,” Biden said in a statement.

If confirmed, the nominations of Yellen, Tanden and Rouse would be the first time the top three Senate-confirmed economic positions went to women. Tanden’s nomination already appeared to be in trouble with Senate Republican aides expressing opposition on Sunday even before it was formally announced.

Biden has also tapped two economic advisers from his presidential campaign, Jared Bernstein and Heather Boushey, to be members of the CEA.

Biden did not announce his pick for a key White House economic post, director of the National Economic Council. But Brian Deese, another BlackRock executive who served in the Obama administration, is likely to be offered the job, people familiar with the matter said.

Drew Brandewie, an aide to Texas Republican Senator John Cornyn, said on Twitter that Tanden “stands zero chance of being confirmed.”

Another aide said Republicans in the Senate would certainly block Tanden, who’s viewed as too progressive even though she’s also had squabbles with some on the left.

The choices show Biden turning to experienced Washington hands as he begins building his economic team, with an eye toward racial and gender diversity.

The group of six nominees includes three women, two African Americans and an Indian American as Biden seeks to put women and minorities in jobs historically held by White men.

Embedded Image
Neera Tanden, president and chief executive officer of the Center for American Progress, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Tuesday, April 30, 2019.  (Bloomberg) 

He received some criticism from Representative Jim Clyburn, the most senior Black lawmaker in Congress, who is credited with helping Biden with the South Carolina primary, a win that sped his progress toward the nomination.

In an interview with Juan Williams for his column in The Hill newspaper, Clyburn indicated he was disappointed the president-elect had named just “one Black woman so far” to a senior position — Linda Thomas-Greenfield as United Nations ambassador.

“I want to see where the process leads to, what it produces,” Clyburn added. “But so far it’s not good.”

Tanden, an Indian-American who currently leads the liberal think tank Center for American Progress, worked on the Obama administration’s health-care reform and was a close adviser to Hillary Clinton.

Rouse also worked in the Obama administration as a member of the CEA and is currently dean of Princeton University’s School of Public and International Affairs. If confirmed, she would be the first African American to chair the CEA.

Adeyemo would bring international economic experience to the Biden team, complementing Yellen’s more domestic focus over the course of her academic and government career. Adeyemo was deputy chief of staff to Jack Lew when he was Treasury secretary and was the first chief of staff of the Consumer Financial Protection Bureau under Elizabeth Warren.

Bernstein and Boushey are well liked by progressives. Boushey, who runs the Washington Center for Equitable Growth, has advocated for paid parental leave and raising the minimum wage. Bernstein was Biden’s chief economic adviser in the White House during President Barack Obama’s first term.

Biden’s team will inherit a U.S. economy rocked this year by the coronavirus pandemic, and will have to try to sustain its revival. There’s already signs of increasing fragility as virus infection rates increase and states begin to lock down businesses again. That threatens the nascent recovery of the labor market, with jobless claims ticking up and payroll gains forecast to slow further in November.

–With assistance from Katia Dmitrieva, Catarina Saraiva and Erik Wasson.

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