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Is the US economy destined to be a Covid long hauler? – Investment Executive



Moody’s said it believes the effects will last for years, notwithstanding a relatively quick recovery.

“We expect economic activity as measured by GDP to return to its pre-coronavirus path by the end of 2021, but an elevated unemployment rate and a lagging recovery in the hardest hit sectors will leave visible bruises,” it said.

Additionally, the growth in both government and corporate debt is “likely to last for several years,” it said.

In the short term, though, Moody’s said the prospects for a return to pre-pandemic GDP levels this year look good. The downturn “has not stressed the financial sector, does not result from a burst credit or real estate bubble and pandemic-related supply disruptions will pass,” it said.

Typically, the recovery following a financial crisis or a burst real estate bubble takes a long time “because damage to banking system balance sheets keeps banks from providing credit to the economy for years” and it takes time to repair corporate and household balance sheets.

In this crisis, the number of bankruptcy filings and defaults has been lower than usual, Moody’s said.

“Pandemic disruptions are creating losses on capital stock (for example, hotels and aircraft), but these are a small share of the economy, and the disruptions are also spurring new investment in digital technologies,” it said.

“Once the pandemic has receded and lockdown measures are rare, consumers will regain confidence,” it noted.

That said, it also suggested that businesses in the hardest-hit sectors will take longer to recover.

“For high-contact travel and tourism-related sectors, recovery will likely lag until anxiety about coronavirus wanes and international restrictions are lifted,” it said.

The recovery will be faster in sectors such as retail, health care and education that pivoted to digital delivery during the pandemic, but the labour force will need to “re-skill for the new digital economy, which will take time,” Moody’s said.

Additionally, the report said that higher levels of corporate and government debt are one consequence of the pandemic that will last.

These elevated debt levels “will likely weigh on growth over the next five to 10 years,” it suggested.

“In the next two years, central banks will manage the debt burden with low interest rates and tolerance for periods of higher inflation, but over time, if governments and companies need to direct funds to repaying debt rather than toward investments it would constrain economic growth,” the report said.

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FACT SHEET: Biden Administration Roadmap to Build an Economy Resilient to Climate Change Impacts –



Agency Actions Will Protect Retirement Plans, Homeowners, Consumers, Businesses and Supply Chains, Workers, and the Federal Government from Financial Risks of Climate Change

Today, the Biden-Harris Administration released a comprehensive, government-wide strategy to measure, disclose, manage and mitigate the systemic risks climate change poses to American families, businesses, and the economy – building on actions already taken by the Biden-Harris Administration including just this week: a redesigned National Oceanic and Atmospheric Administration (NOAA) site to better connect Americans to climate explainers, data dashboards, and classroom-ready teaching resources; the Department of Labor’s new proposed rule to safeguard life savings and pensions from climate risk; as well as the Federal Acquisition Council’s advanced notice of proposed rulemaking to consider greenhouse gas emissions when making procurement decisions.

This year alone, extreme weather has upended the U.S. economy and affected one in three Americans. Both international and domestic supply chains have been disrupted by climate change – whether it’s floods in China and Texas, or wildfires that have burned nearly six million acres of land, supply chains across critical industries including housing, construction, semiconductors, and agriculture have been affected, causing delays and shortages for both consumers and businesses. American families are paying the costs. Extreme weather has cost Americans an additional $600 billion in physical and economic damages over the past five years alone. Climate-related risks hidden in workers’ retirement plans have already cost American retirees billions in lost pension dollars. Climate change poses a systemic risk to our economy and our financial system, and we must take decisive action to mitigate its impacts.

By addressing the costs of the climate crisis head-on, the federal government will safeguard the life savings of workers and families, spur the creation of good-paying, union jobs, and ensure the long-term sustainability of U.S. economic prosperity. The roadmap makes clear that protecting the financial health of American households, deploying clean energy in United States, and building an economy from the bottom-up and the middle-out go hand-in-hand.   

The Administration’s whole-of-government strategy includes six main pillars to achieve the goals of the President’s May 2021 Executive Order on Climate-Related Financial Risks, including several major announcements this week demonstrating concrete actions to protect American families, the federal government, and the economy from climate-related financial risk:

Promoting the resilience of the system to climate-related financial risks.

  • A forthcoming report from the Financial Stability Oversight Council (FSOC) will kick off the first step in a robust process of U.S. financial regulators developing the capacity and analytical tools to mitigate climate-related financial risks.
  • The Treasury Department’s Federal Insurance Office has launched a process to address climate-related risks in the insurance sector, with a focus on assessing the availability and affordability of insurance coverage in high-risk areas for traditionally underserved communities.
  • Consistent with its statutory mandate, the Securities and Exchange Commission (SEC) staff is developing recommendations to the Commission for a mandatory disclosure rule for public issuers that is intended to bring greater clarity to investors about the material risks and opportunities that climate change poses to their investments. This rule is expected to be proposed in the coming months.  

Protecting life savings and pensions from climate-related financial risk.

  • This week, the Department of Labor announced it is proposing a rule that protects workers’ hard-earned life savings by making clear that investment managers can consider climate change and other ESG factors in making investment decisions. The proposed rule – which, if finalized, would help safeguard the more than half of American workers who participate in a retirement plan through their job, representing over 140 million Americans and more than $12 trillion in retirement savings and pensions – would protect workers by making sure that retirement managers don’t turn a blind eye to climate risks and other important factors. It would also make clear that retirement managers can take important environmental, social, and governance factors into account when making investment decisions, so that workers can share in the gains that come from sustainable investments.
  • The Department of Labor is also working to protect the nearly 6.5 million participants in the Thrift Savings Plan – the largest defined-benefit contribution plan in the world – by analyzing how to further factor in climate-related risks.

Using federal procurement to address climate-related financial risk.

  • The federal government is the world’s single largest purchaser of goods and services, spending over $650 billion in contracts in fiscal year 2020 alone. This week, the Office of Management and Budget (OMB) announced that the Federal Acquisition Regulatory (FAR) Council will begin the process of exploring amendments to Federal procurement regulations to require agencies to consider a supplier’s greenhouse gas emissions when making procurement decisions and to give preference to bids from companies with lower greenhouse gas emissions. As part of this work, the FAR Council published this week an Advanced Notice of Proposed Rulemaking to gather information to help major Federal agency procurements minimize the risk of climate change.
  • The FAR Council is also actively exploring an amendment to federal procurement regulations that would improve the disclosure of greenhouse gas emissions (GHG) in federal contracting and set science-based GHG targets. By identifying and mitigating climate risks through procurement, the Federal government is leading by example, deploying public procurement policy as a tool to strategically shape markets and promote a more resilient economy.

Incorporating climate-related financial risk into federal financial management and budgeting.

  • OMB, federal agencies, and the Federal Accounting Standards Advisory Board are taking steps to develop robust climate-related risk assessments and disclosure requirements for federal agencies.
  • Next year, the Fiscal Year 2023 President’s Budget will include an assessment of the Federal Government’s climate risk exposure and impacts on the long-term budget outlook, along with additional assessments.
  • In addition, agencies will further incorporate climate-related financial risk in both the Budget and agency financial reports to increase transparency and promote accountability.

Incorporating climate-related financial risk intofederal lending and underwriting.

  • The Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Agriculture (USDA), and the Treasury Department are each working to enhance their federal underwriting and lending program standards to better address the climate-related financial risks to their loan portfolios, while ensuring the safety and security of communities most impacted by climate change.
  • HUD is working to meet the challenges that climate change poses to American homes, beginning by identifying options to incorporate climate-related considerations into the origination of single-family mortgages.
  • The VA, which has nearly $913 billion in loan volume outstanding to U.S. Veterans, is conducting a review of climate-related impacts to its home loan benefit program.
  • USDA is addressing climate risk in its own single-family guaranteed loan programs, with the goal of applying lessons learned across its entire range of loan programs.  

Building resilient infrastructure and communities

  • This week, the Federal Emergency Management Agency (FEMA) began the process of updating its National Flood Insurance Program (NFIP) standards to help communities align their construction and land use practices with the latest data on flood risk reduction. Through a new Request for Information, FEMA will gather stakeholder input to make communities more resilient and save lives, homes, and money through potential revisions to standards that have not been formally updated since 1976.
  • In addition, agencies have come together to build resilience from other types of more severe and extreme weather events, such as heat waves, droughts, storms, and wildfires.
  • Also this week, the National Ocean and Atmospheric Administration (NOAA) released a suite of products to make the Federal government’s climate information more accessible to Americans. NOAA upgraded its website to make it easier for governments, communities, and businesses to access the data they need to prepare for and adapt to climate risks. And Federal agencies also delivered two reports that lay out a comprehensive plan to further increase open-access delivery of climate tools and services for the public.
  • More than 20 agencies released climate adaptation and resilience plans to safeguard federal investments – and taxpayer dollars – from the costs of climate change. The plans reflect President Biden’s whole-of-government approach to confronting the climate crisis as agencies integrate climate-readiness across their missions and programs and strengthen the resilience of federal assets from the accelerating impacts of climate change.

 These steps will help safeguard the life savings of workers and families, spur the creation of good-paying jobs, and ensure the long-term sustainability of U.S. economic prosperity in the decades to come. Together, they will help usher in a new era where climate-related financial risks are thoroughly understood – where they are measured, disclosed, managed, and mitigated across the economy to the benefit of American workers, families, and businesses.


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US Economy Is Losing Its Bounce as Recovery Turns Into a Grind – BNN



(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Just a few months ago, the U.S. economy looked like it was roaring back from the pandemic slump. Now the recovery is starting to look more like a grind. The spread of the delta variant has held back millions of Americans from spending on services like restaurants and hotel rooms.

Supply chains are still creaking and Hurricane Ida, which caused havoc in petrochemicals hub Louisiana as well as roughly $20 billion of flooding damage in the Northeast, may have made them worse. And high inflation is stretching household budgets.

The Atlanta Federal Reserve’s real-time estimate of economic activity now predicts growth of just 1.3% in the quarter that ended in September. Two months ago it was forecasting 6%.

Economists surveyed by Bloomberg are more upbeat. Still, the consensus growth forecast for the third quarter has dropped sharply since August. None of this means the U.S. rebound is heading into reverse, says Nathan Sheets, newly appointed chief economist for Citigroup Inc. “I think recession’s too strong,” he says. “But it’s certainly softer.” Here are five indicators that illustrate and explain the gathering gloom.

Delivery Delays

Many forecasters use the Purchasing Managers’ Index –- based on a survey of supply-chain managers — to gauge the state of manufacturing, which feeds into their growth estimates. One of its five components is supplier delivery times, and longer waits are typically seen as a sign of robust demand and a strong economy. 

But in pandemic conditions, that may not tell the whole story. There have been unprecedented problems with shipping goods to the U.S., and transporting them once they’re here. In other words, the long waits may be as much a sign of supply weakness as strength in demand –- and confusing those two things may have led economists to be too optimistic about growth. 

Missing Jobs

Economy watchers have also been flummoxed by the labor market. There are more than 10 million open positions – but the pace at which they’re being filled has slowed sharply. In the past two months, virtually every economist surveyed by Bloomberg over-estimated the number of new jobs. 

The lowest-paid Americans are bearing the brunt of the slowdown. Among workers in the lowest quartile of earners, employment was down by 25.6% compared with pre-Covid levels as of mid-August, according to Harvard’s Opportunity Insights project. That’s the worst number since June 2020, a few months after the pandemic started. 

Inflation Bites

Inflation is throwing a wrench into the recovery too. The debate over whether pandemic price surges are transitory has yet to be settled – but they’re reaching ever-deeper into the economy, and crimping the spending power of households. Mark Zandi of Moody’s Analytics estimates the typical household has to pay $175 a month extra.

Read More: Inflation Casts a Longer Shadow

Energy and commodity costs are spiraling higher. Buying conditions for homes, vehicles and durable goods all deteriorated in August due to high prices, according to the University of Michigan’s latest consumer report. Auto purchases fell from an 18.5 million annual pace in April to just 12.2 million last month.

The first wave of pandemic inflation was confined to a relatively small group of goods and services. That’s no longer the case, according to the Cleveland Fed. 

Its researchers found that in recent months, roughly three-quarters of the 44 main components of price baskets were growing at a pace above 3%. That compares with less than one-third of them at the start of this year. 

Services Lag

The pandemic upended American spending habits. Households are buying more goods than ever before — a splurge that’s contributing to the strains on supply chains. But economists say a balanced recovery will require more spending on services too, and that’s happening more slowly.

Restaurants are one example. The spread of delta in the summer months halted the revival of dining out, which has settled at levels below what was normal before Covid hit.

Gloom Feeds Gloom

Business leaders and the general public are turning downbeat about the economy –- and those expectations can be self-fulfilling, if they mean that companies invest less and households are more cautious about spending.

The Michigan consumer survey found that only 44% of Americans expect their financial situation to improve, the lowest reading in seven years. Sentiment among small-business owners deteriorated in September, with the number who expect better business conditions over the next six months falling to the lowest since December 2012. A CEO confidence measure compiled by Chief Executive magazine has also declined for three straight months –- to a level that means all of the gains earlier in 2021 are now gone. 

©2021 Bloomberg L.P.

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Philip Cross: Welcome to our new economy of shortages, comrades – Financial Post



Shortages imply that inflation is much greater than the official measures suggest

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Since the pandemic began, governments have focused almost exclusively on boosting aggregate demand — in the belief that understandably cautious spenders were the main threat to economic growth. But it is becoming increasingly clear that the pandemic’s more enduring impact is disruption of supply. The result is price increases exceeding forecasts and the prospect that persistent shortages will fuel inflation well beyond the three or four months that would qualify as transitory. As is often the case with crises, the pandemic has unleashed unexpected and unintended effects, bedeviling government planners everywhere.


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Few people foresaw shortages as a likely outcome. In summer 2020, the Bank of Canada predicted the “decline in supply is likely to be relatively short-lived” — even though shortages had been emerging in many regions and industries before the pandemic. With immigration plummeting as borders closed, it was predictable that COVID would trigger a drop in labour supply, yet policy-makers were fixated on propping up demand for fear slow growth would put downward pressure on prices.

The most obvious manifestations of shortages are soaring prices for housing and commodities, notably oil and gas. Housing prices across Canada took off during the pandemic. But housing demand has outstripped housing supply since early 2015, when the Bank of Canada lowered interest rates, and the imbalance between the two has been slow to resolve itself, which is usually the case when governments interfere in the market’s normal adjustment to high prices. Government regulations, often at the local level, have prevented housing supply from rising quickly enough to dampen prices. As for oil and gas prices, firms are reluctant to invest after prices cratered in 2020, partly because some governments are blocking further development of fossil fuels. Compare these clogged markets with the market’s quick resolution of this spring’s spike in lumber prices.


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Pandemic shortages worsened when problems surfaced in the global supply chain. A shortage of semiconductor chips first appeared in the auto industry when a reduction in orders by manufacturers coincided with soaring demand from the technology sector as work and shopping shifted on-line. The shortage of new autos triggered a surge in used-vehicle prices, which on its own accounted for nearly half the increase in the U.S. CPI this summer. More recently, growing supply problems in Asia caused by pandemic-related government shutdowns and power outages have been compounded by transportation shortages, notably for container ships and truckers.

Shortages have spread this year to most sectors as many firms struggle to re-hire workers who either have left the labour force or moved to other jobs. The result is the unusual coexistence of both high rates of unemployment and job vacancies, a measure of the distortions introduced into our economy by the pandemic and government programs to support people. So far, labour shortages have not resulted in sharply higher wages, although firms are clearly feeling the pressure; just this week I received a postcard from Amazon offering employment at $17.10 an hour.


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  1. A nearly empty Saint-Catherine Street in Montreal on March 27, 2020.

    Philip Cross: Business ambition needs to be a Canadian value

  2. Statistics Canada this week reported that energy exports reached $12.0 billion in August, more than recouping all their losses during the pandemic.

    Philip Cross: If oil and gas are dead, why are exports booming?

  3. People walk at the Eaton Centre in Toronto on June 24, 2020.

    Philip Cross: Poor policy is what’s causing slower economic growth

Shortages imply that inflation is much greater than the official measures suggest. Statcan’s CPI rose 4.1 per cent in the past year. But it was designed to measure prices in an economy where goods and services are abundant, not a Soviet-style economy of rampant shortages. Shortages are de facto price increases. Higher prices, longer wait times, fewer product options and lower quality of service all represent an increased cost to consumers, yet only list prices are incorporated into the CPI. Furthermore, Canada’s CPI does not include used-car prices, which alone account for the current gap between our 4.1 per cent inflation rate and the Americans’ 5.4 per cent.


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There are ways to measure the cost to consumers of less choice or longer wait times, but they would be costly to implement. The Liberal government was quick to provide Statcan with funding to measure the pandemic’s unequal impact on various minorities in the Labour Force Survey, intentionally stoking woke feelings of victimhood. But money to improve the CPI, which affects everyone since the government’s entire tax-and-transfer system is indexed to it, was not forthcoming.

In Statcan’s latest Survey of Business Conditions, firms said the six largest impediments to their business were directly related to cost increases and supply shortages; just one quarter earlier, three of the six largest obstacles had been demand factors related to attracting customers. In some industries, shortages are pervasive; for example, 98.5 per cent of Quebec manufacturers cited shortages, which are forcing firms to pay penalties for being late or to turn down new contracts because they cannot meet demand.


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Eventually, problems in the global supply chain should be resolved, especially once demand slows after Christmas. But high energy prices and labour shortages may not dissipate quickly, while the retirement of older workers will prove hard to reverse. And to judge by recent U.S. experience, not even withdrawal of emergency support programs and the start of a new school year will provide the hoped-for boost to labour supply. If labour shortages do necessitate higher wages, that will reinforce upward pressure on prices, pushing central banks to raise interest rates and slow demand to re-align it with constrained supply.

Philip Cross, former chief economic analyst at Statistics Canada, is a senior fellow at the Macdonald-Laurier Institute.



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