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Fed official says U.S. economy still in ‘deep hole,’ while surging COVID-19 cases pose further risk – The Globe and Mail

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John Williams, president of the Federal Reserve Bank of New York, speaks at an event in New York on Nov. 6, 2019.

CARLO ALLEGRI/Reuters

The U.S. economy is on a positive trajectory, but it is still in a “deep hole” and a rise in coronavirus infections could slow growth, New York Federal Reserve Bank President John Williams said Friday.

“The very large rise in COVID cases recently clearly puts a question mark on the ability of the economy to weather this period,” Williams said in an interview with the Financial Times. “I would expect the growth in the fourth quarter, and maybe into early next year to slow somewhat.”

The ability to fully move past the virus will depend on the development of vaccines and other therapeutics, and progress announced recently on those fronts offered “positive signs” about the ability to move beyond COVID-19 in the next year or so, Williams said. Pfizer Inc announced earlier this week that its experimental COVID-19 vaccine is more than 90 per cent effective, according to initial trial results.

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Despite that good news, Williams said he is still more concerned about inflation remaining too low over the next several years as the economy continues to heal and millions of people try to get back to work.

“Things are looking better, but that’s in context of an economy that took an enormous hit,” Williams said. “Even today unemployment is still very high and we’re still in a deep hole.”

The fiscal aid rolled out by Congress earlier this year helped Americans stay afloat, and the savings built up with the help of stimulus checks and unemployment benefits are still supporting the economy today, he said.

“The reason consumers are still able to spend, the reason the economy is still going, is that we know that people are still having some of the unemployment checks and stimulus checks that they got,” Williams said. “That’s giving them the ability to pay the rent, put food on the table.”

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Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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