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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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Canada's economy moves into 'recuperation phase' as second-wave impact looms – The Globe and Mail

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Canada’s economic recovery continued to moderate as summer wound down, leaving activity still well short of pre-pandemic levels before the second wave of the COVID-19 virus hit, new data from Statistics Canada show.

The agency reported Friday that real gross domestic product (GDP) rose 1.2 per cent in August from July, slightly more than its preliminary estimate of 1 per cent. It was the fourth straight month of growth, as the economy continued its rapid rebound from the lockdowns in the spring aimed at containing the virus, although the pace of the recovery has been slowing after the dramatic effects of the re-openings in May and June.

Statscan also published an advance estimate for September of 0.7-per-cent growth – which, if accurate, would mean the economy expanded by about 10 per cent in the third quarter, consistent with Bank of Canada and private-sector estimates. But that still leaves the economy about 4 per cent below its pre-COVID levels.

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With October’s sharp increase in the spread of the virus, both in Canada and abroad, renewed virus-containment restrictions threaten to put the brakes on the recovery.

“The economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research note.

The August GDP gains were led by a continued strong recovery in the service sectors of the economy (up 1.5 per cent), which were more deeply affected by the spring lockdowns and subsequent re-openings, while goods-producing sectors grew a more modest 0.5 per cent. Economists noted that the segments that drove much of August’s gains – services such as arts, entertainment and recreation (up 13.7 per cent) and accommodation and restaurants (up 7.3 per cent) – stand to be the hardest hit in the second-wave containment measures, as authorities focus on reducing contact through indoor gatherings.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter,” Bank of Montreal chief economist Doug Porter said in a research report.

Earlier this week, the Bank of Canada issued new forecasts predicting fourth-quarter growth of only 0.2 per cent quarter over quarter – or 1 per cent annualized – in light of the second wave of the pandemic and the return of some government-mandated closures and business restrictions. Ontario and Quebec have already shut down indoor restaurants and bars in large urban centres where COVID-19 cases are highest, while other provinces are clamping down on indoor gatherings and debating whether additional measures are warranted.

Some economists think the central bank’s forecast is overly pessimistic.

“We suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” said Mr. Porter, who forecast that quarterly growth would top 2 per cent annualized.

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“We think there is still scope for continued rebounds in those sectors not directly affected by the restrictions, so we are pencilling in a much larger fourth-quarter gain of 5 per cent annualized,” said Stephen Brown, senior Canada economist at Capital Economics, in a research note.

But the COVID-19 virus remains a massive wild card in any economic forecast, as a growing number of countries face the prospect of renewed restrictions – while at the same time eagerly looking forward to the growing possibility of a viable vaccine in early 2021.

“We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy, as much will depend on the course of the virus,” TD’s Mr. Thanabalasingam said. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”

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Economy

Canada's economy moves into 'recuperation phase' as second-wave impact looms – The Globe and Mail

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 on


Canada’s economic recovery continued to moderate as summer wound down, leaving activity still well short of pre-pandemic levels before the second wave of the COVID-19 virus hit, new data from Statistics Canada show.

The agency reported Friday that real gross domestic product (GDP) rose 1.2 per cent in August from July, slightly more than its preliminary estimate of 1 per cent. It was the fourth straight month of growth, as the economy continued its rapid rebound from the lockdowns in the spring aimed at containing the virus, although the pace of the recovery has been slowing after the dramatic effects of the re-openings in May and June.

Statscan also published an advance estimate for September of 0.7-per-cent growth – which, if accurate, would mean the economy expanded by about 10 per cent in the third quarter, consistent with Bank of Canada and private-sector estimates. But that still leaves the economy about 4 per cent below its pre-COVID levels.

Story continues below advertisement

With October’s sharp increase in the spread of the virus, both in Canada and abroad, renewed virus-containment restrictions threaten to put the brakes on the recovery.

“The economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research note.

The August GDP gains were led by a continued strong recovery in the service sectors of the economy (up 1.5 per cent), which were more deeply affected by the spring lockdowns and subsequent re-openings, while goods-producing sectors grew a more modest 0.5 per cent. Economists noted that the segments that drove much of August’s gains – services such as arts, entertainment and recreation (up 13.7 per cent) and accommodation and restaurants (up 7.3 per cent) – stand to be the hardest hit in the second-wave containment measures, as authorities focus on reducing contact through indoor gatherings.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter,” Bank of Montreal chief economist Doug Porter said in a research report.

Earlier this week, the Bank of Canada issued new forecasts predicting fourth-quarter growth of only 0.2 per cent quarter over quarter – or 1 per cent annualized – in light of the second wave of the pandemic and the return of some government-mandated closures and business restrictions. Ontario and Quebec have already shut down indoor restaurants and bars in large urban centres where COVID-19 cases are highest, while other provinces are clamping down on indoor gatherings and debating whether additional measures are warranted.

Some economists think the central bank’s forecast is overly pessimistic.

“We suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” said Mr. Porter, who forecast that quarterly growth would top 2 per cent annualized.

Story continues below advertisement

“We think there is still scope for continued rebounds in those sectors not directly affected by the restrictions, so we are pencilling in a much larger fourth-quarter gain of 5 per cent annualized,” said Stephen Brown, senior Canada economist at Capital Economics, in a research note.

But the COVID-19 virus remains a massive wild card in any economic forecast, as a growing number of countries face the prospect of renewed restrictions – while at the same time eagerly looking forward to the growing possibility of a viable vaccine in early 2021.

“We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy, as much will depend on the course of the virus,” TD’s Mr. Thanabalasingam said. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”

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Canadian economic growth cools to 1.2% in August – CBC.ca

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The Canadian economy grew in August as real gross domestic product rose by 1.2 per cent in August, Statistics Canada reported Friday. 

That marked the fourth straight month of growth following the steepest drops on record back in March and April amid pandemic lockdowns. August’s figure was down from the 3.1 per cent expansion seen in July.

The August number was still ahead of what forecasters had been expecting. According to financial data firm Refinitiv, economists had been predicting growth of 0.9 per cent for the month.

Despite the recent string of growth, overall economic activity is still about five per cent below February’s pre-pandemic level, Statistics Canada said.

September growth is forecast

Preliminary information from Statistics Canada indicates real GDP was up 0.7 per cent in September, with increases seen in the manufacturing and public sectors, as well as in mining, quarrying and oil and gas extraction.

“This advanced estimate points to an approximate 10 per cent increase in real GDP in the third quarter of 2020,” Statistics Canada said. Back in the second quarter, the country’s GDP shrank by 11.5 per cent in the three-month period between April and June. 

Assuming the economy contracts in October and November as a result of a resurgence of coronavirus cases, fourth-quarter GDP looks likely to undershoot the Bank of Canada’s “tepid” forecast for a seasonally adjusted annual rate of one per cent, said CIBC Capital Markets senior economist Royce Mendes.

“It appears that the economy was slowing more than expected heading into the fourth quarter, and the most likely outcome now suggests that GDP barely advanced during the period,” Mendes said in a commentary.

BMO chief economist Doug Porter said the way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in the fourth quarter.

“However, we suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild,” Porter said. “In fact, we continue to expect modest growth overall for [the fourth quarter].”

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