Biden: US needs to reimagine economy and our future
President Joe Biden pitched his proposed investments in families and education at an Illinois community college on Wednesday, telling residents of the swing district that what’s good for families is also good for the economy. (July 7)
AP
Are the economy’s post-pandemic fireworks already fading?
Some top economists have lowered their blockbuster forecasts for this year amid lingering supply-chain bottlenecks, rising inflation and the rapidly spreading of the COVID-19 variant. Toss in a couple of wild cards too: Uncertain prospects for more government stimulus and a Federal Reserve that suddenly seems inclined to raise interest rates sooner than expected.
“Risks to the outlook have intensified,” says Barclays economist Jonathan Millar.
No need to panic. Economists still expect the U.S. to record its fastest growth since the early 1980s as Americans flush with an extra $2.5 trillion in savings — from government stimulus checks and spending cutbacks during pandemic-induced lockdowns – splurge.
For months, experts figured the recovery from the COVID recession would peak midway through the second quarter, or in May, as households spent their latest round of stimulus checks, amounting to $1,400 for individuals. But recent economic reports “reveal a somewhat sharper pullback in U.S. growth and faster inflation rate than expected,” Scott Anderson, chief economist of Bank of the West, wrote in a note to clients.
Vehicle sales fell to 15.4 million last month from 17 million in May as a result of low inventories, rising prices and a slowdown following stimulus-fueled purchases, according to TD Economics and Barclays. Housing sales and mortgage applications have slipped because of soaring prices and limited supplies. And indexes of both manufacturing and service sector activity have softened, largely due to the supply chains snags.
Anderson has trimmed his economic growth forecast to 8.7% annualized in the second quarter from 9.6% a month ago and to 7.4%, down from 7.7%, in the current quarter. For the entire year, Oxford Economics expects growth of 7% at an annual rate — which would still be the fastest pace since 1984 — down from its prior 7.7% estimate.
The disappointing indicators, and the prospect of somewhat slower growth and inflation, have helped push down 10-year Treasury yields to about 1.36% from 1.7% in mid-May and made for a more volatile stock market.
Those factors, along with the delta variant of COVID, have increased risks that the economy could slow even further in 2021, though probably by no more than a couple of percentage points, Millar says.
Here’s a look at why the economy could slow more than projected:
Supply chain snarls and inflation
Although consumer demand has surged as the economy reopened, businesses don’t have many of the products and workers they need to keep pace. Many workers at factories, warehouses, ports and restaurants are still caring for children, wary of contracting COVID or reluctant to give up generous unemployment benefits. And trucks and shipping containers are in short supply.
Analysts had expected the shortages to ease by this summer but now say they could last through the end of the year, curtailing economic activity.
“There’s lots of strong demand but it’s a challenge to bring the goods and services to households,” Millar says. “At the end of the day, that’s what GDP (gross domestic product) is all about.”
The crunches are also contributing to a big pickup in inflation, which had been dormant for years. In May, the consumer price index was up 5% from a year earlier, the largest increase in 13 years. Average unleaded gasoline prices hit $3.15 a gallon Monday, up from $2.20 a year ago, according to AAA.
The effects could be limited if consumers believe the price increases are temporary, as leading Fed officials have argued, but could be more pronounced and dampen spending if they think the higher costs will stick around, Millar says.
The COVID delta variant
The fast-spreading strain of the virus is triggering a jump in COVID cases, which averaged 19,455 per day over the past seven days, a 47.5% increase from the previous week, according to Johns Hopkins University. The variant could lead some states to reinstate business restrictions, particularly in the South and West, where vaccination rates are low, says Anderson and Mark Zandi, chief economist of Moody’s Analytics.
Already, the variant seems to have affected job growth in states with low vaccination rates, economist Ellen Zentner of Morgan Stanley wrote in a note to clients.
President Biden has announced a $1.2 trillion bipartisan plan to rebuild the nation’s infrastructure and another bill that could cost even more to upgrade a variety of social service programs, such as childcare, home caregiving and free college tuition. The latter could be passed with a simple Democratic majority in the Senate. But both blueprints may be downsized significantly as the White House struggles to satisfy Republicans as well as moderate and progressive Democrats, Millar says. That would temper growth projections in coming years.
Fed concerns about inflation
The Fed has promised to keep its key interest rate near zero until the economy returns to full employment and annual inflation tops its 2% target for “some time.” But with both growth and inflation rising, Fed officials’ forecasts at a June meeting showed two rate hikes in 2023, pushing up the timetable for the first increase from 2024.
Millar says the central bank’s shift has spooked some investors. Higher inflation could prompt the Fed to raise rates sooner than anticipated, further constraining the recovery.
End of housing, student loan aid
The government suspended foreclosures on homes with government-backed mortgages and on rental evictions, and allowed Americans to put off mortgage and student loan payments, Zandi says. After several extensions, the foreclosure and eviction moratoriums are set to expire at the end of the month and the deferral of the payments, and September, he says. Although a declining number of Americans are at risk, Zandi says the deadlines pose a “meaningful threat to my optimistic baseline outlook.”
Unlike some other economists, however, Zandi believes the risks to a historic recovery will likely be no match for a massive wave of pent-up household demand.
“The economy’s prospects are strong, and it would take a lot to derail it,” he says.
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.
