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Economy

Democrats and Republicans have traded places in their views of the economy’s direction – Washington Post

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Paul De Santis and Jodie Helms both say the economy looks different than it did just a few weeks ago.

De Santis, 47, a Democrat in Freeland, Md., who called the economy “poor” this fall, is now upbeat, while Helms, 40, a Republican in Ballinger, Tex., fears the end of what she recently saw as “excellent” conditions.

The economy, which continues its slow healing from the pandemic recession, actually isn’t all that different than it was in the fall. But there has been a change in what increasingly determines opinions about the economic landscape: the identity of the party controlling the White House.

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“The outlook with the Biden administration coming in to replace the Trump administration is what will improve things,” De Santis said.

“I’m 100 percent sure if Biden ends up in the White House, it won’t be good for my family,” said Helms, who retains hope that President Trump will overturn the election outcome.

The views of De Santis and Helms symbolize a striking partisan divide that emerged in the Trump era — when Republicans began routinely viewing the economy in a better light than Democrats — and now may be hardening into permanence.

Over the past five months — and especially since the presidential election — the parties have switched places. Democrats became notably more buoyant, while Republicans just as quickly turned gloomy. The nature of economic policy debates during a strikingly unequal recovery is likely to cement such divergent views, according to Richard Curtin, chief economist for the University of Michigan’s consumer sentiment index.

“A rise in inequality caused a growing share of the population to think the only way to get a fair distribution of income and wealth was through public policy,” Curtin said. “Politics and policy now have a greater impact on people’s expectations about how the economy will perform in the years ahead. That’s why it’s not going away.”

The clash between Republicans’ emphasis on efficiency, expressed through low taxes and light regulation, and Democrats’ insistence upon equity has intensified amid two economic crises in a dozen years. Under the incoming administration of President-elect Joe Biden, fights over policies that would redistribute income from top earners to less affluent households — such as health care and student loan forgiveness — are likely to reinforce the parties’ contrasting economic assessments, Curtin said.

Consumer confidence is sliding amid the pandemic’s winter surge, according to surveys this week from the University of Michigan, Morning Consult and the Conference Board. On Wednesday, the University of Michigan said its consumer sentiment index dipped in late December, though it remained above last month’s reading.

December’s 80.7 figure was up nearly 5 percent from November “due to a large and rapid partisan shift, with Democrats becoming much more positive and Republicans much more negative,” Curtin said.

The change is evident in views of current conditions and the outlook, but it is particularly acute regarding the years ahead. Compared with three months ago, twice as many Democrats (54 percent vs. 27 percent) now expect a “continuous expansion over the next five years,” while that expectation was cut nearly in half among Republicans (down to 32 percent from 60 percent), Curtin said.

Democrats are more optimistic about the economy’s prospects than at any time since Trump defeated Hillary Clinton in 2016. Last month, for the first time in four years, Democratic expectations became rosier than those of Republicans, according to the University of Michigan data.

Democrats’ increasingly positive views defy numerous economic woes, including nearly 4 million workers who have been unemployed for more than six months and rising numbers facing hunger.

Republicans have a much rosier view of today’s economy, but are downright despondent about the future. Not since October 2016 have Republicans been more glum.

It wasn’t always this way. In 1980, when Ronald Reagan first won the presidency, just four points on the Michigan index separated Democrats from Republicans.

By February 2017, following Trump’s inauguration, the gap was more than 38 points, nearly 10 times as wide.

De Santis is an environmental attorney who favors a transition to a “green” economy, while Helms worries such policies will hurt her husband, an oil field worker. Like millions of other Americans, the two inhabit entirely distinct realities.

For De Santis, a lack of presidential leadership allowed the pandemic to put the economy into a “stranglehold.”

He said a newly elected “moderate” will focus on curbing the virus by rolling out new vaccines before focusing on the move away from fossil fuels needed to ensure long-term prosperity.

“The Biden administration will be better for the economy than the Trump administration — but that’s not what the Trump voters would say,” De Santis said.

Indeed, they wouldn’t.

In Central Texas, Helms mourns what she fears is the end of four straight years of solid economic gains. Thanks to Trump, the family prospered, buying a house, outfitting their kids with new clothes and trading their 13-year-old vehicle for a late-model Dodge Ram mega-cab.

“The economy in our part of the state has improved so much,” she said.

Helms said Trump understands the need to balance economic considerations with the pandemic fight. She doesn’t trust Biden or the news media that calls him the president-elect.

“I’m holding out hope for Trump. It will be a really bright future for us if he stays in office,” she said. “If he doesn’t, I’m fearful.”

The partisan divide after Trump’s election was much sharper than in the aftermath of previous elections in which a newly elected president replaced a member of the other party. Following Reagan’s 1980 victory over President Jimmy Carter, just 16.5 points separated Democrats from Republicans on the Michigan scale. After Barack Obama’s 2008 win, the gap was 17.2 points.

But after Trump dispatched Clinton, opposing partisans were nearly 75 points apart.

“This pattern has just undermined the credibility of the confidence indicators to some extent,” said economist Jim O’Sullivan, chief U.S. macro strategist for TD Securities.

The Trump years have taken a toll on other economic surveys. The National Federation of Independent Business optimism index jumped on his 2016 win and — except for the worst months of the pandemic’s initial wave — stuck well above its 25-year average no matter what was happening in the real economy. The small-business survey’s persistent upbeat tilt reduced its predictive value, O’Sullivan said.

Such sentiment indicators are most useful in signaling oncoming recessions, according to Mark Zandi, chief economist of Moody’s Analytics. When confidence plummets, it generally means a broader downturn is a few months away, he said.

The Michigan sentiment reading plunged in December 2000, three months before the 2001 recession officially began. Likewise, the indicator headed south in August 2007, four months before the housing bubble imploded and took the economy with it.

“Consumer confidence is neither here nor there in typical times,” Zandi said. “It reflects the economy. It doesn’t drive the economy.”

Partisanship also has its limits. Unmistakable booms and busts register with members of both parties and drive major swings in sentiment readings.

When this year began, Republicans were more impressed with what the president often called “the greatest economy in the history of our country.”

With the 3.5 percent unemployment rate near a half-century low, Republicans’ view of the economy registered 133.1 on the University of Michigan scale while Democrats were at 100.9.

Even as Helms celebrated good times, De Santis said he harbored doubts about the long-term consequences of what he saw as Trump’s excessive deregulation.

But as the pandemic took hold, members of both parties suffered virtually identical mood swings. Between February and April, Democrats’ view of current conditions plunged by almost 36 points, while Republicans’ reading sagged by about 43 points.

“Partisanship is a big influence, but reality is sort of a constraint on it,” said Jeff Jones, a senior editor with Gallup. “People are responsive to what’s going on. It’s not just partisanship.”

Indeed, for many Americans, partisan leanings can’t obscure economic reality. In Amsterdam, N.Y., Milagros Burgos, 53, was happy to see Biden elected. But she’s no Pollyanna about the economy.

“Things are real bad,” she said.

Burgos’s daily existence remains difficult. A former hair salon operator, who has custody of her two granddaughters, ages 6 and 7, she makes due with less than $20,000 in annual disability payments.

What does she want from the new president? “Help. Help,” she said, beginning to cry. “We’re struggling real bad.”

Asked if the election results had made her more optimistic, she said: “Everything’s political. Let’s see.”

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate – The Globe and Mail

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

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For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Canadian economy starts the year on a rebound with 0.6 per cent growth in January – CBC.ca

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

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WATCH | The Canadian economy grew more than expected in January: 

Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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