Joe Biden will inherit a mangled U.S. economy — one that never fully healed from the coronavirus and could suffer again as new infections are climbing.
The once robust recovery has shown signs of gasping after federal aid lapsed. Ten million remain jobless and more layoffs are becoming permanent. The Federal Reserve says factory output dropped.
Parents cannot return to work as childcare centres have shuttered. Restaurants and local retailers are draining whatever cash reserves are left–with many owners wondering if the next week might be their last. One in six restaurants was already closed in September, according to an industry survey.
Biden will also be facing an American public with decidedly different views about their own financial well-being, with higher income families weathering the pandemic reasonably well and those earning far less in increasing economic peril.
It will in some ways be a reprise of when Biden became vice-president at the depths of the financial crisis in 2008-09, with possibly fewer tools and less political leverage to press an agenda to both corral the virus and stoke economic growth.
He is expected to somehow inject enough aid to sustain workers, businesses and state and local governments, without necessarily having enough congressional partners who share his concerns. All of this could be the difference between a successful presidency and a floundering one.
It’s unclear whether his victory was enough to tip the Senate to the Democrats — with two Senate seat runoffs in Georgia — and provide a clearer pathway for the money. This means that any efforts to secure another round of aid may depend on Republicans who were already voicing concerns about a rising budget deficit before the election.
Senate Majority Leader McConnell of Kentucky previously said a measure should be passed before year-end, but it’s unknown in the aftermath of the election what a compromise would look like or whether U.S. President Donald Trump would back it. The longer that aid gets delayed, the greater the threat for the economy.
“The risk is that the recovery goes into reverse,” said Gregory Daco, an economist for the consultancy Oxford Economics.
AP VoteCast, a survey of more than 110,000 voters, found that the recession’s harm has mostly struck lower-income households, though most people were shielded in large part by initial rounds of aid that nearly totalled US$3 trillion.
Twenty-nine per cent of voters in households earning less than $50,000 annually said they’re falling behind financially. Their misfortune is a sharp contrast to what’s happening for those with incomes above $100,000. Not only are higher-earners less likely to be struggling, but 26% said their finances are improving.
Biden received more support than Trump from households earning less than $50,000. Voters in higher income households were more closely split between the two candidates.
Among Biden voters, 89% said it was more important to contain the pandemic than limit any ongoing damage to the economy. This is likely because they see no trade-off: the economy will never safely recover so long as the threat of the coronavirus exists.
“To get the economy under control, you need to get the virus under control,” said Amanda Fischer, policy director at the Washington Center for Equitable Growth, a liberal think-tank . “It’s the K-shaped recovery–we see a divide between the wealthiest and everyone else.”
The economy was objectively hurting as ballots were cast, even if it has improved since April. The unemployment rate was 6.9%, compared to 4.7% when Trump took office. Retail sales slipped 0.8% since the start of 2020, with a collapse at restaurants, clothiers and furniture stores.
“The labour market still has a long way to go to recover to where it was before the pandemic,” said Jed Kolko, chief economist at the job posting firm Indeed. “Employment is down in almost all industries, dramatically down in industries that depend on travel and large gatherings.”
The nation’s top public health officials are warning that the virus is likely escalating — record numbers of cases have been reported this week — and are beseeching Americans to wear masks, maintain social distance, and avoid large groups, especially indoors. The worsening disease could force more businesses to close.
Still, 43% of voters believed the economy was excellent or good. This includes about three-quarters of voters backing Trump, who campaigned on the idea that the economy was booming and would continue to do if he remained president. With Biden in the White House, these once-optimistic voters may suddenly switch and say the economy is troubled.
“That’s what we saw in 2016 — a reversal by party in economic confidence,” Kolko said. “It was dramatic and very quick after the election. I wouldn’t be surprised if we saw the same.”
Alec Phillips, an economist at Goldman Sachs, wrote in a note Wednesday that control of the Senate will determine how much additional aid gets approved. He anticipates Republican control means a stimulus package under $1 trillion, but a Senate Democratic majority with Biden in the White House would push that up to $2.5 trillion to $3 trillion.
Federal Reserve Chairman Jerome Powell said at a Thursday news conference that the pace of any recovery will depend on approving more aid, though he noted that the path of the economy will likely mirror the path of the disease.
“We’ll have a stronger recovery if we can just get at least some more fiscal support,” Powell said.
AP VoteCast indicates that there is little to no reservoir of bipartisanship for crafting policies to help the country. The vast majority of Trump voters, 85%, believe that corruption would be a “major problem” in a Biden presidency. Likewise, 92% of Biden voters say corruption would be a “major problem” if Trump secured a second term.
There is also a philosophical divide: Most Biden voters believe the government should do more to solve the nation’s problems, while most Trump voters say the government is already doing too much.
Brian Riedl, a senior fellow at the conservative Manhattan Institute for Policy Research, estimates that the Democrats and Republicans have about $500 billion worth of shared priorities for additional aid. That might leave House Speaker Nancy Pelosi with little choice but to accept that sum, if Republicans preserve their Senate majority.
“Republicans have little reason to budge,” he said. “So the question is whether Democrats will accept a $500 billion package and come back later for more, or continue the stalemate.”
Part of the challenge is not just the size of any aid package, but whether it helps state and local governments that are starving for tax revenue and whether it can be passed quickly enough to help the families most in need. Trump has already colored that debate by saying that Democrats want to bailout poorly managed states, a talking point echoed by some Republicans.
The problem for Biden is that the group he lifted up during the election — the poor and the working class — are the ones who will bear the most pain from any gridlock.
“The U.S. economy is operating at around 80% of total capacity to produce and consume,” said Joe Brusuelas, chief economist at RSM, a tax advisory and consultant.
“The U.S. can afford to wait on additional fiscal aid,” he said, but “the poor and working class are going to pay a terrible price.”
AP polling reporter Hannah Fingerhut contributed to this report from Washington.
Charting the Global Economy: Recession Recovery Is Wildly Uneven – BNN
The world’s economic recovery is wildly uneven — and that again was on display this week.
U.S. data on the eve of the Thanksgiving holiday offered signs of both strain and strength, while Germany’s resilience was again on display in European PMI numbers — even amid new lockdown measures that have knocked the economy back.
No matter where in the world you are, the economic consequences of the pandemic are falling disproportionately on the young. Though if you could chose where to weather the crisis, a new scorecard suggests New Zealand should be high on the list.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
U.S. business activity is powering ahead and housing market remains red hot. The annualized rate of new-home sales has averaged 1 million from August through October, the strongest demand since 2006, and a increase in builder backlogs suggest residential construction will remain robust through at least the end of the year.
Still, some of the ground looks shaky. Americans’ income declined more than forecast in October, the number of people applying for state unemployment benefits unexpectedly increased in consecutive weeks for the first time since July, and consumer sentiment dipped to a three-month low.
European economies are contracting again as the latest coronavirus restrictions take a massive toll on services. The Purchasing Managers Index for the euro area slipped back into contraction in November, as did the U.K. Germany, however, is coping with the latest restrictions relatively well.
U.K. Chancellor of the Exchequer Rishi Sunak sought to balance more jobs support with controversial spending cuts this week to get control of the government’s pandemic debts. According to Bloomberg Economics, the U.K. will struggle to avoid economic scarring, though the hit will probably be smaller than from previous recessions. That’s in part because of the scale of the policy response.
Australian Prime Minister Scott Morrison is trying to break a standoff with China that has stalled delivery of more than US$500 million worth of coal from the world’s biggest exporter as tensions between the two trading partners mount.
China’s economic recovery stabilized in November, underpinned by solid global demand for exports ahead of the Christmas period and the stock market’s gain to its highest since 2015.
Consumer prices in Latin America’s two largest economies diverged in early November, complicating Brazil’s plans to hold its benchmark interest rate at a record low while suddenly giving Mexico space to cut.
Bloomberg Economics doesn’t expect Nigeria’s recovery to gain momentum until next year, when the deep oil production cuts agreed in 2020 are eased and the emergence of a vaccine lifts global demand.
In 2019, the U.S.-China trade war blew a hole in global growth, in 2020, the pandemic caused a historic crash, but 2021 could be the year when U.S.-China ties stabilize and a vaccine draws a long-awaited line under the Covid crisis, according to Bloomberg Economics.
While the people at greatest risk of suffering severe cases of Covid-19 are of retirement age, the economic fallout has been greatest on the young. A look at unemployment rates across Group of Seven economies shows how severely the crisis has hurt 15-24 year olds.
Bloomberg crunched the numbers to determine the best places to be in the coronavirus era. New Zealand had the highest score. Japan, at No. 2, was the only G-7 country to make the top 10.
–With assistance from Dan Hanson (Economist), Tom Orlik (Economist), Björn van Roye (Economist), Catherine Bosley, Sophie Caronello, Rachel Chang, Eileen Gbagbo, Max de Haldevang, Mario Sergio Lima, Alex Morales, Jason Scott and Kevin Varley.
Province reports lower deficit, touts recovering economy in mid-year report – CBC.ca
The provincial government released its mid-year report today and projected a deficit almost $400 million lower than expected.
Earlier this year, the provincial government forecasted a $2.4 billion deficit but today’s report showed that to be sitting around $2 billion, an improvement of $381.5 million from this year’s budget.
Revenue projections also saw an increase, to the tune of $503.5 million, or 3.7 per cent from the provincial budget announcement.
“The increase from budget is due to higher federal transfers, higher government business enterprise net income and higher non-renewable resource revenue,” a statement from the Ministry of Finance said.
Tax revenues were projected to decrease by $41.2 million as a reduction in the small business tax rate was factored in. Other tax and own-source revenue forecasts were unchanged from the budget.
Expenses were forecasted to be $16.2 billion, an increase of $122 million, or 0.8 per cent. The increase covered money for the health, education, municipal and tourism sectors and was partly offset by lower-than-budgeted pension expenses and crop insurance claims expenses.
The mid-year forecast included the impacts of the government’s election commitments, totalling $91.7 million.
Finance Minister Donna Harpauer said $260 million was set aside as contingency, which she said is a substantial cushion that’s built in for the remaining six months of the year. She said data from the first six months of the year will help guide the province through the remainder of the year.
She noted that the contingencies are set aside to protect the healthcare system and said the province will do “whatever it takes” to ensure the system is supported through the COVID-19 pandemic.
“There is no way to say what the magic number will be … compensation salaries is going to be a big part of that, and that is something that we couldn’t pre-pay,” Harpauer said on Friday.
“At 160 million, that will deal with quite a bit of that pressure for the next few months.”
In reflecting on the numbers, Harpauer said she was pleased to see the provincial economic indicators were stronger than what was initially anticipated.
She said she’s concerned because the province is reliant on two items in particular: consumer confidence and trade. Consumer confidence is affected by COVID-19 numbers, she said, and because the province is trade-dependant, Saskatchewan is heavily affected by what happens in other jurisdictions in Canada and around the world.
“I will always have a nervousness for those two factors because they will affect this budget in a big way,” Harpauer said.
Drop in public and net debt
The ministry said public and net debt are both down compared to the budget’s forecasts.
Estimates showed Saskatchewan’s net debt-to-GDP ratio, as of March 31, 2021, would be at 19.6 per cent, one of the lowest in the country, and the ministry touted Saskatchewan’s credit rating as the second-highest in Canada.
“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said in the provncial release.
“Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget. Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels. As a result, our planned path to balance in 2024-25 is unchanged.”
Bank of Canada says vaccine could cause economy to rebound faster than expected – TheChronicleHerald.ca
By Julie Gordon and David Ljunggren
OTTAWA (Reuters) – Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful coronavirus vaccination effort, Bank of Canada Governor Tiff Macklem said on Thursday.
On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could if necessary cut already record low interest rates.
In late October, the bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early next year.
“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast and if that happens the economy will rebound more quickly,” Macklem said in response to questions from the House of Commons finance committee. He described the news about vaccines as promising.
In late October, the bank forecast the economy would not fully recover until some time in 2023, a forecast Macklem repeated in his opening remarks.
The path to recovery still faced risks, he said. Earlier this year the bank slashed its key interest rate to 0.25%.
“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points, it could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful.
The U.S. Federal Reserve has a target for its key rate of 0 to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%.
Some other central banks also have benchmark rate that are less than 0.25%, such as the European Central Bank and the Bank of England.
“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” Macklem said.
(With additional reporting by Fergal Smith in Toronto; Editing by Rosalba O’Brien, Tom Brown and Aurora Ellis)
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