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Here’s what’s really hurting the economy

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I went out for pizza the other night, but had to eat it in my car.

That’s because the Frank Pepe’s in Manchester, Connecticut had this sign on its door.

“Attention: Dining Room closed after 4 p.m. today due to staffing shortages.”

So I ate in my SUV, no problem, (the pizza was fantastic), but it made me think 1) this can’t be good for Frank Pepe’s, and 2) the note on the door is literally a sign of the times.

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A sign we’re living in a world where supply shortages — employees, oil, semiconductors — are commonplace and impacting the economy to a degree we haven’t seen for decades. The implications on inflation, Fed policy, a possible recession and our global well-being are immeasurable.

Supply constraints are everywhere these days, some Captain Obvious, others more opaque. In some instances economic downturns are caused by drops in demand. That might be the result of a stock market crash like after 1987 or 2000, as consumers have less money to spend. Or it could be an event like the February to April 2020 COVID recession, when people didn’t venture out to buy things.

Supply shocks can cause downturns or recessions, too. “In the 1970s, there were two mega supply shocks,” economist Nouriel Roubini told me during the recent Yahoo Finance All Markets Summit. “One was the war between Israel and the Arab states which led to a spike in oil prices in ’73 and the second one was the [1979 Iranian revolution] which also caused a spike of oil prices. This time around, the spike is not just in an oil crisis, it is natural gas, food, fertilizer, industrial products, and semiconductors.”

A closed sign is taped to the door of the Main Street Pub in Clifton, Virginia, on December 30, 2021. - The pub has struggled with ongoing staffing issues throughout the pandemic. (Photo by Heather SCOTT / AFP) (Photo by HEATHER SCOTT/AFP via Getty Images)A closed sign is taped to the door of the Main Street Pub in Clifton, Virginia, on December 30, 2021. - The pub has struggled with ongoing staffing issues throughout the pandemic. (Photo by Heather SCOTT / AFP) (Photo by HEATHER SCOTT/AFP via Getty Images)
A closed sign is taped to the door of the Main Street Pub in Clifton, Virginia, on December 30, 2021. – The pub has struggled with ongoing staffing issues throughout the pandemic. (Photo by Heather SCOTT / AFP) (Photo by HEATHER SCOTT/AFP via Getty Images)

Since the onset of COVID, the global economy has been battered by both supply and demand shocks, which have vexed leaders around the globe. The roughly $5 trillion of stimulus our government put into the economy jacked up demand for cars, homes and meme stocks, etc. Given those aforementioned supply constraints, it’s hard to recall a time with such pronounced supply-demand mismatches.

One effect has been inflation, currently running at 8.2% — still hovering near the 40-year high of 9.1% we saw in June. Can we discern how much of that comes from the demand side, how much from supply? Phil Levy, chief economist at Flexport, says that while Europe’s energy problems suggest a supply shock, too much demand is the bigger problem.

“The largest part of what we’re seeing with [higher] prices is coming from demand, which has increased — and supply can’t quite keep up with the pace,” Levy says.

The causes of supply deficiencies

Let’s drill down into those supply deficiencies, the causes of which include the pandemic, the great resignation, Russia’s invasion of Ukraine, de-globalization and climate change — or some combination of these factors.

Putin’s invasion of Ukraine has disrupted supplies of wheat, corn and grain and even sunflower seeds. His stranglehold over Europe’s natural gas supply, plus the sabotage of a pipeline there, plus boycotts of Russian oil and gas means less energy for Europe and beyond. There are already slowdowns and stoppages of manufacturing. Winter is only 60 days away, and rationing for heat is a distinct possibility.

This is a global supply problem. How about this recent headline from the Wall Street Journal: “New England Risks Winter Blackouts as Gas Supplies Tighten Grid officials warn of strain as the region competes with European countries for shipments of liquefied natural gas.”

Speaking of New England, climate change can wreak havoc on supply, as you may find out this Thanksgiving when your cranberry sauce is prohibitively expensive or even non-existent due to shortages. Why? Extreme drought in New England, which Zachary Zobel, a scientist at the Woodwell Climate Research Center in Massachusetts, told Grist was the result of climate change. Climate change is disrupting the supply chain in many other ways, and on a much bigger scale.

The chip shortage has also been hitting industries across the globe — including the auto business, as GM CEO Mary Barra recently told me. But it’s not just the huge corporations being hit by low chip supplies. My alma mater, Bowdoin College, recently ran into supply-chain snags while trying to complete some buildings.

“Due to chip shortages, the companies that manufacture the controls for our AV systems have announced 12-24 month shipping delays, and we are being warned that networking equipment will be similarly challenged,” Michael Cato, Chief Information Officer. “This complicates our planning in multiple ways including timing for financial budgets and navigating the multi-year timeline of construction projects.”

There might also be a shortage of workers to complete those projects. The great resignation has hit many businesses, but it’s also affecting the government. John McQuillan, CEO of Triumvirate Environmental, which disposes commercial and hazardous waste, has a business that requires government permitting — a process he says has slowed.

“We want to increase our processing capacity, but you have a bunch of regulators who have resigned. The more experienced people tend to be older. I have four or five things pending in the United States, Canada and Mexico right now. And in all of the instances I hear is, ‘We have staffing shortages, the key person has retired, or we’re waiting to hire somebody for that position.’”

What do we have in our anti-inflation toolkit?

What can be done about supply issues? Remembering, they are a significant cause of inflation and possibly a recession. Ideally, the Federal Reserve can moderate inflation by raising interest rates. Unfortunately, the Fed’s traditional tools, raising interest rates and shrinking its balance sheet, are about curbing demand, not increasing supply. That doesn’t mean that policymakers and the private sector are helpless.

Michael Spence, a Nobel laureate in economics and professor emeritus at Stanford, writes in Project Syndicate that higher rates and withdrawing liquidity “threaten to push global growth below potential.” “There is another way,” he says, “supply-side measures.” Like what? Spence argues that “creeping protectionism must be reversed,” and urges a removal of tariffs. He also says that efforts must be made to improve productivity. “Many sectors — including the public sector — are lagging, and concerns about the effects of automation on employment persist.”

In a recent report by the Center for American Progress, a liberal think tank in Washington, chief economist Marc Jarsulic argues for expanding the uptake of COVID-19 vaccines to reduce labor and manufacturing supply shocks, providing additional support for child and home care to raise labor force participation and reducing limits on working-age immigration to increase labor supply.

“Actions such as these are not part of the standard anti-inflation toolkit, but given the changing economic environment, they ought to be,” Jarsulic says.

In fact all these supply issues may produce a silver lining, argues Financial Times columnist Rana Foroohar in her new book “Homecoming, The Path to Prosperity in a Post-Global World,” who notes: “The supply chain disruptions of the last few years have now lasted longer than the 1973–74 and 1979 oil embargoes combined. This isn’t a blip but rather the new normal.”

The book argues that “a new age of economic localization will reunite place and prosperity. Place-based economics and a wave of technological innovations now make it possible to keep operations, investment, and wealth closer to home, wherever that may be.”

Here’s hoping Foroohar has written the silver lining playbook.

This article was featured in a Saturday edition of the Morning Brief on Oct. 22. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Follow Andy Serwer, editor-in-chief of Yahoo Finance, on Twitter: @serwer

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Surprise Growth Makes South Africa’s Economy Bigger Than Before Pandemic Struck – BNN Bloomberg

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(Bloomberg) — South Africa’s economy is bigger than before the coronavirus pandemic struck, after growing faster-than-expected in the third quarter on increased farm output.

Gross domestic product expanded 1.6% in the three months through September, compared with a contraction of 0.7% in the previous quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria. The median of 12 economists’ estimates in a Bloomberg survey was for growth of 0.4%. The economy grew 4.1% from a year earlier.

Full-year growth may also surprise on the upside. The central bank forecasts an expansion of 1.8% and the National Treasury 1.9%. For the nine months through September, an early indicator of where full-year growth may land, GDP grew by 2.3% from last year.

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The 2.3% expansion in the first three quarters is a “reasonable indicator” of the annual number, said Joe de Beer, deputy director-general of economic statistics at the agency. “I can’t see it differing by more than” half a percentage point “from just a mathematics point of view,” he said.

“After taking into account the firmer-than-expected third-quarter figure, we expect growth to average closer to 2.5% in 2022, before slowing to just above 1% next year,” said Sanisha Packirisamy, an economist at Momentum Investments.

At an annualized 4.6 trillion rand ($265 billion) in the third quarter, GDP is about 53 billion rand bigger than the fourth quarter of 2019, before the pandemic struck. A contraction in the prior three months had reversed gains made in the first quarter that made it bigger.

The quarterly expansion comes even after Africa’s most-industrialized economy experienced record power cuts because state electricity utility Eskom Holdings SOC Ltd. couldn’t keep pace with demand from its old and poorly maintained plants. Industries behind the better-than-expected growth were agriculture and transport, which grew 19.2% and 3.7% quarter-on-quarter respectively.

Strong exports of mineral, vegetable and paper products also contributed.

Still, South Africa’s economy remains stuck in its longest downward phase since World War II and hasn’t grown by more than 5% annually in 15 years. The government’s National Development Plan, a 2012 economic blueprint co-authored by President Cyril Ramaphosa, says that level of expansion is needed for sustainable job creation in a nation where almost a third of the workforce is unemployed.

Slow structural reforms, political uncertainty and high levels of crime continue to weigh on fixed-investment spending in South Africa, with private companies wary of committing large sums of money to domestic projects. Gross fixed capital formation climbed 0.3% from the previous quarter.

Household spending, which comprises about two-thirds of GDP, declined 0.3% in the third quarter. It’s likely to come under further strain from high inflation and interest rates that are at a level last seen more than five years ago.

Weak growth is forecast for the final quarter because of continued rolling blackouts and a strike over wages that took place at Transnet SOC Ltd., South Africa’s state-owned logistics company that operates most of the harbors in the nation, in October. The central bank forecasts expansion of 0.1% this quarter.

Lackluster economic growth and mounting price pressures pose a threat to social stability in one of the world’s most unequal societies and may stymie efforts to reduce fiscal deficits and debt.

–With assistance from Simbarashe Gumbo and Rene Vollgraaff.

(Updates with economist comment in paragraph five. An earlier version corrected household spending figure in paragraph 11)

©2022 Bloomberg L.P.

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World Economy Heads for One of Its Worst Years in Three Decades – BNN Bloomberg

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(Bloomberg) — The world economy is facing one of its worst years in the three decades as the energy shocks unleashed by the war in Ukraine continue to reverberate, according to Bloomberg Economics.

In a new analysis, economist Scott Johnson forecasts growth of just 2.4% in 2023. That’s down from an estimated 3.2% this year and the lowest — excluding the crisis years of 2009 and 2020 — since 1993.

However, the headline figure is likely to mask diverging fortunes, with the euro area starting 2023 in recession and the US ending the year in one. By contrast, China is projected to expand more than 5%, boosted by a faster-than-expected end to its zero-tolerance Covid strategy and support for its crisis-hit property market.  

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Differences will also be on display when it comes to monetary policy after a year in which central banks “dashed toward restrictive territory in a pack,” Johnson wrote.

“In the US, with wage gains set to keep inflation above target, we think the Fed is headed toward a terminal rate of 5%, and will stay there till 1Q24. In the euro area, meanwhile, a more rapid decline in inflation will mean a lower terminal rate and the possibility of cuts at the end of 2023.”

In China, where authorities are torn between a desire to support the recovery and concern about the weakness of the currency, “limited” rate cuts are on the cards.

Read more: Global Growth Set to Slow From 3.2% in 2022 to 2.4% in 2023

©2022 Bloomberg L.P.

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Securing good jobs, clean air, and a strong economy – Prime Minister of Canada

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Autoworkers have been a keystone of the Canadian economy for generations. By investing in the future of the auto industry, we are not only securing good middle-class jobs, we are fighting climate change, and building an economy that works for generations to come. 

Since January alone, Canada has secured several historic manufacturing deals for electric vehicles (EVs), hybrids, and batteries – deals that will create and secure thousands of good, middle-class jobs and provide the world with clean vehicles. Today, we are seeing the results of one of those deals start to roll off the line.

The Prime Minister, Justin Trudeau, was joined today by Premier of Ontario, Doug Ford, to open Canada’s first full-scale EV manufacturing plant, General Motors of Canada Company’s (GM) CAMI assembly plant in Ingersoll, Ontario. Starting today and going forward, the plant will build fully electric delivery vans – the BrightDrop Zevo 600 – which will help cut pollution and keep our communities healthy for our children and grandchildren.

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Thanks in part to a $259 million investment from the Government of Canada, GM’s CAMI assembly plant was able to retool its operations to build these electric vans. By 2025, the plant plans to manufacture 50,000 EVs per year. This investment has helped secure thousands of well-paying, high-quality jobs across GM facilities, and is helping advance the electrification of Canada’s automotive sector.

The Government of Canada will continue to work to attract investment from companies around the world as we build our EV supply chain – from mining critical minerals to manufacturing batteries, and vehicles. By taking action today, we are positioning Canada as a global leader in EVs, fighting climate change, securing good jobs, and building an economy that works for all Canadians – now and into the future.

Quotes

“When we invested in GM’s project to build Canada’s first full-scale electric vehicle manufacturing plant in Ingersoll, we knew it would deliver results. Today, as the first BrightDrop van rolls off the line, that’s exactly what we’re seeing. This plant has secured good jobs for workers, it is positioning Canada as a leader on EVs, and will help cut pollution. Good jobs, clean air, and a strong economy – together, that’s the future we can build.”

The Rt. Hon. Justin Trudeau, Prime Minister of Canada

“Today is proof that our historic investments in EV manufacturing are paying off. With the first BrightDrop vans coming off the assembly line, we’re seeing the skill of Canadian workers making a huge difference as the world moves to EVs. Our government, in partnership with GM, is cementing Canada’s leadership in the EV supply chain.”

The Hon. François-Philippe Champagne, Minister of Innovation, Science and Industry

“This milestone represents GM at our best – fast, flexible and first in the industry. The BrightDrop Zevo is a prime example of GM’s flexible Ultium EV architecture, which is allowing us to quickly launch a full range of electric vehicles for our customers. And, as of today, I am proud to call the CAMI EV Assembly team the first full-scale all-electric manufacturing team in Canada.”

Mark Reuss, President, General Motors

“This is a very exciting moment – a revolution in the way we transport people and goods. Today marks a huge day for BrightDrop, as we expand our footprint and begin producing the Zevo electric vans at scale, and a huge milestone for Canada on the road to a brighter future. Opening the CAMI plant is a major step in providing EVs at scale and delivering real results to the world’s biggest brands, like DHL Express, who will be our first Canadian customer.”

Travis Katz, President and CEO, BrightDrop

Quick Facts

  • The Government of Canada’s $259 million investment supports GM’s more than $2 billion project to reignite production at its Oshawa assembly plant, after operations stopped in 2019, and transform its CAMI assembly plant in Ingersoll.
  • The investment is being made through both the Strategic Innovation Fund and its Net Zero Accelerator Initiative.
  • The Government of Ontario made a matching contribution of up to $259 million toward the project.
  • Founded in 1918, General Motors of Canada Company (GM) is one of the largest automotive manufacturers worldwide. It is headquartered in Oshawa, Ontario, and is one of Canada’s largest automotive manufacturers.
  • GM is planning to introduce 30 new electric vehicles by 2025, eliminate tailpipe emissions from new light-duty vehicles by 2035, and become carbon neutral in its global products and operations by 2040.
  • The automotive sector contributes $16 billion to Canada’s gross domestic product and is one of the country’s largest export industries.
  • The automotive sector supports the employment of nearly 500,000 Canadians.
  • The 2030 Emissions Reductions Plan, released in March, puts Canada on track to achieving our goal of cutting emissions by 40 to 45 per cent below 2005 levels by 2030 while continuing to build a strong economy.
  • To make zero-emission vehicles more affordable and accessible, the Government of Canada offers incentives of up to $5,000 off the purchase or lease of a light-duty zero-emission vehicle through the Incentives for Zero-Emission Vehicles (iZEV) Program. Since May 2019, close to 176,000 Canadians have taken advantage of this program.
  • Since 2015, the Government of Canada has invested $400 million in building approximately 35,000 zero-emission vehicle charging stations across the country.

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