As we embark on the second half of 2021, the U.S. economy has almost entirely reopened following the pandemic shutdown. With the healing process underway, what challenges will the economy and markets face on the move toward normal? To help figure out what may lie ahead, let’s first take a look back to see how far we’ve come.
A Story of Recovery and Healing
Outside the U.S. Many countries are still struggling to contain the virus. Despite this fact, containment of the virus abroad has begun and progress has been made. The rest of the world has seen less progress than the U.S., but countries abroad will have upside potential throughout the rest of the year. The healing process has started and will continue.
Markets gains. Market action during the month reflected this state of affairs. On the whole, U.S. markets were up. Both the Nasdaq and S&P 500 were up significantly in June, and all three major U.S. indices (including the Dow) were up significantly year-to-date. Markets have hit multiple all-time highs this year even as they continued to move higher. We have seen the same thing abroad. Both developed and emerging markets were up for the second quarter and the year so far, although by less than the U.S. markets. The pandemic has done real damage worldwide, but we can also see that the healing has started.
A story of recovery. Looking back, the story of the year so far has been of recovery and healing. June marked the substantial completion of that process in the U.S. Our state economies are almost entirely reopened. July will mark the start of the next phase of the recovery, as the pandemic and economy move closer to normal.
Slower Improvement Ahead?
Pandemic progress. Regarding the pandemic, the numbers have largely stopped getting better because case growth stabilized at the end of June and the start of July. Moreover, as more contagious variants spread throughout the U.S., we may be looking forward to new flare-ups of the virus in some locations. Another national wave of infections is unlikely, but areas with low vaccination rates could well face local health crises. Overall, the pandemic is likely to remain a risk across the country, although not for the country as a whole. The country can operate at the current levels of infections, and even somewhat higher, and will continue to do so. The pandemic will not go away, but it will be normalized over time just as the flu has been.
Economic progress. In general, economic conditions have improved significantly. But, as with the pandemic, the rate of improvement is likely to slow as we approach normal and the statistics get closer to pre-pandemic levels. Consumer confidence, for example, is now at or above the levels we saw before the pandemic started. But business confidence has pulled back from the peaks seen in recent months. This scenario reflects the replacement of optimism with realism, as our attention shifts from the end of the pandemic to the usual problems. News reports, for example, are now about inflation and supply chain problems, rather than pandemic improvements. This trend is a necessary part of our transition to normal. Nonetheless, it signals that improvement will be slower through July and the rest of the year.
Labor market. The one exception to the trend of slowing improvement is likely to be the labor market. While unemployment remains high, job growth is healthy and will probably remain so. As wages rise, more and more people will be drawn back into the labor market. That will help keep confidence and growth high. We will see slower growth, yes, but we will still see growth. Jobs will be one area where we can expect sustained improvements.
Upside potential. Despite the general slowing of the economic improvement, there are reasons we could get faster growth. As the rest of the world catches up, foreign demand will help the U.S. economy. It seems very likely that we will get large amounts of federal infrastructure spending, which will serve as a tailwind. And the Fed remains committed to low interest rates, which will put a foundation under both growth and the financial markets. All these factors point to significant upside potential.
Negative Headlines Signal Return to Normal
Looking back, in the first half of the year we saw the end—from an economic perspective—of the pandemic. In June, in particular, we started to move back to normal, as worries about the economy replaced worries about the pandemic. Although the economic worries are real, they are a sign that the country is moving back to normal. As such, we can now afford to worry about normal things.
Looking forward to July and the rest of the year, our normal will include some worries, but it will also include continued hiring and continued growth. Normal, here in the U.S., means more jobs, more growth, and higher markets. Not every month, or even every year, but over time. With June very likely marking the end of the economic effects of the pandemic, July should mark the start of getting back to normal. Expect the negative headlines, but welcome them as a sign that things are back to normal. We will be able to worry about things other than the pandemic. Even as the worrisome headlines hit, remember that the underlying trends remain positive. We are moving closer to normal every day.
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.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
