The U.S. economy tapered off toward the end of 2019, but a record expansion is still alive and well.
The numbers: The U.S. economy grew slightly faster than 2% in the final three months of 2019, aided by a temporary plunge in imports and a resurgent housing market. The modest rate of growth likely foreshadows what lies ahead.
Gross domestic product, the official scorecard for the economy, expanded at a 2.1% clip in the fourth quarter. Analysts polled by MarketWatch had forecast a 1.9% increase.
The U.S. got off to sizzling start last year as GDP reached 3.1% in the first quarter, but growth tapered off to the postrecession average of around 2% after the trade war with China intensified and business investment slumped.
The government’s snapshot of the economy toward the end of last year offers a glimpse of what’s in store for 2020. Consumer spending has fueled a record expansion now in its 11th year even as businesses have cut back on investment and production. Those trends are likely to persist.
What happened: Consumer spending, the lifeblood of the economy, rose at a 1.8% pace in the fourth quarter. While that’s a big dropoff from gains of 3.2% and 4.6% in the spring and summer, it’s still more than enough to keep the economy on a stable path of growth.
Households have spent generously over the past year as unemployment fell to a 50-year low of 3.5%. Wages are rising at a healthy 3% rate and layoffs are at the lowest level in decades.
The steady pulse of consumer spending, meanwhile, has led to higher sales for businesses and allowed them to maintain current staffing even as the economy has slowed.
The economy got an even bigger boost — though likely a short-lived one — from a sharp decline in the U.S. trade deficit. Exports climbed 1.4% while imports sank 8.7% in the fourth quarter. That’s the biggest decline since the end of the 2007-09 2007-09 recession.
The drop in imports stemmed mostly from an increase in U.S. tariffs on Chinese goods last September. Companies rushed to beat the tariff increases, then cut back on import orders to wait to see if the Trump administration rolled back the punitive measures.
An interim deal with China that’s eased trade tensions rolled back some of the tariffs and economists expect imports to snap back in the first quarter. The first sign of a rebound came in December.
On the other side of the ledger, weak business investment held the economy back again.
Investment in equipment declined almost 3% and spending on structures like oil rigs tumbled 10% in the fourth quarter. Trade tensions and Boeing’s ongoing troubles with its grounded 737 Max plane have exacerbated the slowdown in investment.
The level of inventories was another drag. The change in the value of unsold goods rose just $6.5 billion vs. a $69.4 billion increase in the prior quarter, lopping about 1.1 percentage points off final GDP.
Inventory growth sank in large part due to a strike at General Motors in the fall that crimped auto production. Inventories are likely to rebound in the first quarter.
The one bright spot in the commercial segment of the economy has been housing. Builders stepped up investment after the Federal Reserve cut interest rates and demand for housing rose. Housing outlays rose 5.8% in the fourth quarter.
Government spending, meanwhile, increased 2.7% in the fourth quarter, largely reflecting an increase in outlays on ships, planes, missile systems and other military hardware.
Inflation, as measured by the Fed’s preferred PCE price index, was little changed at a 1.6% rate.
Big picture: The economy is growing fast enough to ward off the threat of recession, but there’s no explosion in growth coming.
The so-called Phase One trade deal with China has put the dispute between the world’s two largest economies on the back burner, but ongoing tensions are likely to keep businesses in the sidelines. The new threat from the coronavirus and 2020 U.S. presidential elections are also giving business leaders angst.
Most economists predict the U.S. will grow less than 2% in 2020, compared with 2.3% in 2019 and 2.9% in 2018.
What they are saying? “The 2.1% headline GDP print gives the optical illusion of an economy chugging along at a moderate 2% clip at the end of 2019, but the composition of growth reveals a softer picture,” economists at Oxford Economics told clients in a note.
“The bottom line is that the economy appears to have successfully sidestepped a more pronounced slowdown that sent ripples of fear through the market last year,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Certainly, the economy isn’t firing on all cylinders, but it also doesn’t appear to be at risk of stalling out either.”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
