“There seem to be three different economies out there,” said Ethan Harris, global economist at Bank of America, in an interview. “You’ve got a housing market in recession, you’ve got a consumer who’s hanging in, and then you’ve got a hot labor market.”
The economy has been a bit of a conundrum to unpack for a while now, after the pandemic tossed multiple segments into disarray across the globe. In the United States, there was a quick but deep recession as millions of workers were laid off, businesses were shuttered, and the economy ground to a halt. The subsequent rebound has been unpredictable, to say the least. (Remember the lumber shortage? What about when nobody could find dumbbells?)
The stock market soared throughout much of 2020 and 2021, only to sputter in 2022. Supply chain disruptions have eased, though the system remains far from perfect. Plenty of parts of the economy are quite robust, but everyone feels terrible about it anyway. Even so, many consumers are spending through it.
“I’m going to courageously go out on a limb and say we’re 50/50 on a recession,” joked Jason Furman, an economist and former chair of the Council of Economic Advisers under the Obama administration, in an interview.
It’s the type of prediction that sounds like a cop-out but is probably an honest reflection of the times: Multiple parts of the economy have gone a little haywire, and it’s not clear which of the normal rules apply and to what extent. Endless kinks — induced by the pandemic, Russia’s war in Ukraine, and continuing Covid shutdowns in China, among other factors — are still appearing and being worked out. It’s uncertain as of yet what might be a permanent dent.
Consumers and workers, policymakers and economists are all trying to put together the same economic puzzle with some pieces that just don’t fit. In the background lurks a sneaking sensation that everything in the economy that is going well could soon turn negative, especially if the Fed gets its way. It has indicated it might lighten up somewhat soon, but nothing’s for sure. That feeling of precarity is impossible to shake.
“It’s kind of like we’re in a china shop,” Claudia Sahm, founder of Sahm Consulting and former Fed economist, told me in a recent interview. One false move and the whole thing comes crashing down.
Nothing in the economy makes sense anymore because nothing has made sense for a while.
The economic arrows are pointing kind of everywhere
Generally, multiple parts of the economy move together. Different indicators, such as GDP (gross domestic product), income, employment, and industrial production, weaken at the same time ahead of a recession, or they strengthen when a recovery is underway. In this moment, that’s not the case, and distinct data points send a total picture of mixed signals.
Manufacturing output and industrial production are relatively flat, and factory activity has declined somewhat. Labor productivity during the first part of the year inexplicably plummeted, though it’s started to pick up some. Employment, on the other hand, has consistently continued to rise, with the US economy adding 263,000 jobs in November and wages continuing to rise. The number of job openings remains high. Inflation is cutting into wage growth, but wages are still rising, especially for people at the lower end of the income spectrum. New vehicle sales appear to be slowing as higher interest rates take their toll, but it’s nowhere near the toll those same higher interest rates have taken on the housing market.
“The labor market is lagging the broader slowdown due to record job openings coming into the year. The consumer is hanging in due to the still hot job market and massive excess savings. Service spending is solid in part due to pent-up demand left over from the shutdowns. The legacies of the Covid shock and record fiscal stimulus continue to be felt,” Harris wrote in a mid-November research note at Bank of America. “Put it all together and the lags from Fed policy tightening to the economy are even longer and more variable than normal.”
Different economists have different explanations for — or at least theories on — what is going on, but most acknowledge there’s no succinct, obvious explanation.
“Normally, you’d have everything going down together, but we don’t,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “The pandemic separated supply and demand in a manner that I’ve never seen before.”
Just take a look at the auto industry: more people wanted cars, new and used, during much of the pandemic. Those cars were nowhere to be found thanks to supply chain issues and other abnormalities. Something similar happened in the lumber industry. People took up home improvement projects and started building more housing in 2020. But the supply side at the start of the pandemic assumed the opposite would happen and slowed down production, and once they realized the pandemic-induced pickup in demand was happening, they were slow to ramp up.
Paulsen said that, now, the economy has, in a way, been “scared into conservative behaviors” because business and consumer confidence is so low and everyone’s worried about a slowdown on the horizon. “There’s been a lot of fear in this thing,” he said.
Furman acknowledged there’s “more of a sense that anything can happen than would normally be the case,” though he still tries to use standard economic relationships to figure out what’s most probable, even if he’s not at all certain they’re correct. “The biggest mystery of the past year has been how output’s been flat and employment rose, so there’s this disconnect between what employers are doing and how much companies are producing,” he said, noting that another disconnect is that “inflation is just a lot higher than what you’d think just from the unemployment rate alone.”
Not to be cliché here, but it really is the case that so much that’s happened over the past three years has been completely unprecedented. If we’d known a global pandemic was on the horizon in 2020, we’d all have probably had a lot more fun in 2019. That irregularity is what’s making it so hard to understand what’s going on now; there are so many new factors in the equation that the previous rules of the economic math might not entirely add up or apply.
“If you’d told me the price of cars had skyrocketed the way it did, or the fact that we had significant inflation of goods that basically reversed several decades of deflation in 2019, if you told me that was coming in the next couple of years, I would not believe you,” said Mike Konczal, director of macroeconomic analysis at progressive think tank the Roosevelt Institute. “I would have assumed a lot of crazy things would have happened for that to be true, and a lot of crazy things did happen.”
Everybody’s got a case of the economic icks
Plenty of parts of the economy are quite robust, but everyone feels terrible about it anyway. The University of Michigan’s consumer sentiment index has rebounded somewhat from its lows earlier this year, but it’s still well below where it was in the depths of the pandemic.
Heading into the holiday season, it appears sales on Cyber Monday, which follows Thanksgiving, have hit a new record. Online sales on Black Friday hit a new record, too.
“It’s been amazing that consumer sentiment is just incredibly low, it’s like depths-of-the-financial-crisis low, it’s way worse than it was when the economy shut down due to Covid, and that’s not being reflected in people’s spending, which remains quite healthy,” Furman said. “There’s this disconnect between people saying negative things and not acting in a very negative manner.”
Furman also pointed to the results of the 2022 midterm elections as evidence that the way people are feeling about the economy and the way they’re acting is a little off. As a general rule, the party in power tends to do poorly in midterm elections, and especially given the state of inflation and gas prices (which have been very high but are now coming down some) heading into Election Day, many pollsters and pundits assumed the Democrats were doomed. But the “red wave” many anticipated did not appear. Republicans took the House of Representatives, while Democrats maintained control of the Senate.
As Vox’s Christian Paz noted, early exit poll data showed that most voters said they felt the economy was “not so good” or “poor” but also said that inflation was a moderate hardship on their families or not a hardship at all. “That suggests that even with near-record high inflation, voters were willing to consider other factors in their voting decisions — and not everyone cared to connect the economy to their vote for a Democrat or against a Republican,” Paz wrote.
Still, there’s no denying people feel quite bad about the economy, even if many segments of it are quite good. Ultimately, inflation has “canceled out” the good labor market, Konczal said — you can’t tell people the economy is good and to appreciate how many jobs there are. “People can’t eat job openings if their food budget has gotten a lot smaller,” he said.
Where the economy is headed, nobody knows
To be clear, the economy isn’t some impossible black box; there are plenty of things that are known.
The global economy, overall, is slowing. Inflation remains higher than it’s been in decades. In the US, monthly job growth has averaged hundreds of jobs a month. The Fed is trying to bring down inflation by raising interest rates multiple times this year. The expectation is this will lead to a slowing in the labor market that, thus far, hasn’t happened.
Harris told me he thinks the “three economies” he identified moving in different directions “are all going to turn weak because it’s just a matter of time with what the Fed is doing.”
The hope is the Fed’s efforts lead to a soft landing, meaning it’s able to cool the economy off without pushing it into a full-blown recession, but a recession risk isn’t off the table by any means. The Fed has indicated it’s taking into account the cumulative effects of its actions and that it’s aware there will be lags to those effects. Still, Fed Chair Jerome Powell has been clear he is focused on bringing inflation down.
“Without price stability, the economy does not work for anyone,” Powell said in a speech in August. “In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.”
Konczal said it’s “incredibly unclear” where the Fed goes next after it again raises interest rates in December. Its target for inflation is 2 percent, which is well below the 7.7 percent annual rate it was in October. But what if it comes down to, say, 3 percent or 4 percent? “There’s a question of whether you really want to hurt a lot of people to get inflation back down to 2 percent, which is a fake number, it is an arbitrary number,” he said.
In late November, Powell acknowledged he and his colleagues did not want to “overtighten” and that they might slow the pace of interest rate hikes as soon as December, comments that heartened markets. But he also said the fight to get inflation under control isn’t over: “Despite some promising developments, we have a long way to go in restoring price stability.”
There’s also much that’s out of the Fed’s hands, in terms of what impacts the economy. Russia’s ongoing war on Ukraine and China’s approach to Covid continue to weigh as well. And if the last three years have taught us anything, it’s that we have no idea what else could be around the corner.
Moreover, it’s not clear how many of the changes the economy has seen over the past year are temporary or what’s permanent. The push under the Trump and Biden administrations to build more in America marks a shift against globalization and toward more domestic sourcing and production. “The era of globalization is definitely over,” Konczal said. “It looks like our trade policy is going to be much more focused on building core industrial capacity in the United States, notably on things like green energy.”
Employers also remember how hard it has been to hire people and keep them on over the past few years, which may make them more hesitant to let them go now — though, as we’ve seen with the massive tech layoffs, that’s not true across all industries. With the Fed raising interest rates and otherwise tightening monetary policy, the era of easy money is over, at least for now. That has contributed to what looks like the end of the big tech boom and a slowdown in the still volatile crypto market, and it is clearly weighing on the overall markets.
I’ve said it before and I’ll say it again: Anyone who says they know exactly what is going on in the economy is lying. The same goes for anyone who says they know for sure where the economy is headed. Under all of the old rules, some things don’t make sense right now, and it’s not clear if it will all ever make sense again.
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.
