(Bloomberg) — The rapid spread of the delta variant has sown volatility in financial markets this week, but thus far economists are maintaining their forecasts for an historically strong U.S. recovery.
Key to their relative confidence: officials are unlikely to order renewed lockdowns, and most consumers won’t drastically alter their plans. Any change in that assessment, and bets are off.
“The delta variant is posing a growing risk, but it’s probably not to the point that we should be making big, negative changes in our outlook,” Claudia Sahm, a former Federal Reserve economist who’s now a senior fellow at the Jain Family Institute, said in an interview. The outbreak has largely affected the unvaccinated so far, but Sahm said if it keeps spreading, “we’re going to find out a lot more about how much of that impacts the vaccinated and how much it freaks them out.”
For now, the rough consensus is that spending, travel and business activity will only be affected at the margin. Even late last year, when waves of Covid-19 cases hit the U.S., the recovery continued apace.
U.S. GDP is on course to jump 6.6% this year, and quarterly growth rates will be handily beating the average of the past decade well into 2022, Bloomberg surveys of economists show.
Andrew Husby at Bloomberg Economics highlights three factors that give him some confidence:
While Covid-19 cases have been surging, hospitalizations and deaths haven’t
The biggest impact has been in areas of lesser economic importance, such as some southern U.S. states
Some of the groups most at risk are least likely to change behavior
Bloomberg Economics: What’s the Delta From Delta Variant? Not Much
Nationwide high-frequency data show that Americans continue to spend and eat out at restaurants, as seen from compilers including OpenTable. New York City last week saw demand for hotel rooms hit its highest since the pandemic hit.
Still, there are inklings of potential change: Los Angeles County has reimposed a mask mandate. Apple Inc. delayed its office reopening. In markets, longer-term Treasury yields — those most sensitive to the outlook for growth — on Thursday were heading for a fourth straight week of declines.
Following are the comments of a number of economists on the delta variant’s economic impact:
‘Fluid Situation’
“So far, we haven’t seen any impact in the U.S. when it comes to real-time data,” said Aneta Markowska, Jefferies chief U.S. economist, by phone. “In fact, it looks like momentum actually improved in June, with foot traffic in particular. And that requires the opposite of social distancing.”
If Covid-19 “spikes stay localized, it’s hard to imagine a big national impact. Is a school reopening in New York State or in California going to be delayed because of a localized outbreak in Louisiana? Probably not. Obviously, it’s a fluid situation. It changes the risk profile, but it doesn’t change the base case for the U.S. outlook.”
JPMorgan’s Caution
“The delta variant may impart a little more caution in consumer behavior,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note Thursday.
JPMorgan trimmed its estimate for consumer spending growth to 4.5% for the third quarter from 5% previously. Still, with inventory gains offering upside risks, Feroli left this quarter’s gross domestic product forecast unchanged at 8.3%.
Local Caseload
“I do not think the impact will be marginal,” said William Spriggs, chief economist at the AFL-CIO, in an email. Policy makers are underestimating how many people will remain home from work amid rising infections, and that it will hit prime-age workers hardest this time, he said.
“Even though the most-affected states are extremely unlikely to shut down, people stopped economic activity because of local caseload — not because of public orders. So, we could see retail sales continue to remain flat, as they have since March.”
Watch Schools
“The variant will do meaningful economic damage if it causes people to resume sheltering-in-place and forces schools to remain online when the school year starts in a few weeks,” Mark Zandi, chief economist at Moody’s Analytics, said in an email.
“Odds are uncomfortably high there will be other variants that are highly contagious, virulent, and elude our vaccines,” he said. But, “putting aside these dark scenarios, it remains highly unlikely the Delta variant would short-circuit the economic recovery.”
Vaccination Shield
“At least in the U.S., I just do not see the appetite for taking steps that would discernibly slow the economy — even mask mandates look like they will only be re-applied in a few places,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, in an email.
Stanley pointed out in a research note to clients that even though cases have risen at a faster-than-expected pace, nearly half of Americans are now fully vaccinated and more are seeking to be inoculated each day as public health efforts ramp up. That limits the risk of the new Covid-19 variant and helps assuage consumers, he said.
British Example
In the U.K., where the delta variant spread rapidly before it became prevalent in the U.S., “hospitalizations and deaths remain so far below where they were the last time cases were this high,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research.
“I don’t see much downside to the economy. Consumers remain flush with cash and spending continues apace. Inventories remain low and are likely to rebuilt in the months ahead, supporting manufacturing production. Homebuilders are working through backlogs, particularly now as construction costs have moderated, supporting residential investment. Capital spending intentions remain strong.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
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.
