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Economy

Heads of biggest banks stress need for more stimulus to power economic recovery and avoid deeper recession – NBC News

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This week’s bank earnings say more than just how the giants of the financial services industry are faring seven months into the coronavirus pandemic. The presentations and comments made in response to investor questions provide a glimpse into what banking executives expect a “new normal” to look like and how the American economy will reshape itself around Covid-19 in the future.

At a recent trade group conference, JPMorgan Chase CEO Jamie Dimon laid out how life is likely to look for many workers: An increased reliance on remote work and as many as 40 percent of Chase’s own workforce working from home on a rotating basis. But Dimon also repeated a viewpoint he had previously expressed about an urgency to resume some semblance of pre-pandemic normalcy in the workplace, with “rational, thoughtful return to the office” a growing priority if the substantial service-sector economy is to recover.

Aug. 11, 202022:36

In an investor conference call Wednesday, Bank of America CEO Brian Moynihan and CFO Paul Donofrio noted that while credit card spending improved in the last quarter, it was still below pre-pandemic levels as a result of people not spending on travel and other services.

Heading into earnings season, a big question for analysts was how much banks were setting aside in anticipation of future defaults from credit cardholders, homeowners, business owners and commercial real estate operators. The answer was largely a relief: After setting aside huge amounts of cash in anticipation of a deluge of bad debt, banks reported that they were dialing back on those reserves, either adding significantly less to them or, in some cases, outright trimming them back.

“We’ve certainly hit bottom in terms of loan loss reserves,” said Ken Leon, director of equity research at research firm CFRA.

Bank executives noted that unemployment, loans in deferral, consumer spending and borrowing activity have all recovered off lows earlier in the year. The expected wave of default never materialized, analysts say, because enhanced unemployment insurance payments, the Paycheck Protection Program and other emergency funding streams allowed millions of Americans and small business owners to continue repaying loans.

“Keeping bank earnings afloat is the fiscal stimulus that helped bridge the gap for many people and businesses.”

“The main thing that is keeping bank earnings afloat is the fiscal stimulus that helped bridge the gap for many people and businesses,” said Luke Lloyd, investment strategist at Strategic Wealth Partners.

Where banks still struggled was with their ability to turn a profit lending money. With a near-zero Fed funds rate and a commitment from Federal Reserve Chairman Jerome Powell to hold that rate there for an extended period, banks are limited in their ability to earn income from borrower interest.

“This is anywhere from 50 to 60 percent of total net revenue for these banks,” Leon said.

Banks did report growth in asset and wealth management, and in their trading divisions.

The cautious optimism expressed by big bank executives, though, hinges on some assumptions about the outcome of the election less than three weeks away, and on the ability of lawmakers to deliver additional support to Main Street.

“Right now the polls are indicating a Democratic sweep,” said Marc Chaikin, founder of Chaikin Analytics. Markets are baking in that assumption, he said, as well as the presupposition that a ‘blue wave’ will herald a sea change in fiscal policymaking. “I think the market is basically looking beyond the fourth quarter and assuming there’s going to be a big stimulus bill, plus infrastructure spending,” he said.

If these spending programs are not forthcoming, the dynamic could change rapidly. Chaikin noted that both Chase’s Dimon and Citigroup CEO Michael Corbat expressed a note of caution about the fourth quarter. “They want to see a fiscal stimulus bill passed in Washington,” he said.

Fed Vice Chairman Richard Clarida also touched on the topic in remarks delivered virtually to the Institute of International Finance on Wednesday. “The Covid-19 recession threw the economy into a very deep hole, and it will take some time, perhaps another year, for the level of GDP to fully recover,” he said. “It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed.”

“I think it is likely that Q4 would look worse without additional stimulus measures,” said Jeff Mills, chief investment officer at Bryn Mawr Trust, who noted that there already is evidence that more Americans are tapping their savings to stay afloat.

“Given still-high levels of unemployment and the likelihood that income levels will continue to be challenged, spending will ultimately come down if additional stimulus is not added,” Mills said.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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