WASHINGTON (Reuters) – One U.S. Federal Reserve official says there is now a “clearer focus” about the economy’s path forward and a horizon for a fuller recovery. Another says the pandemic’s “endgame” is here. A third predicts 2021 will prove “impressive.”
After a catastrophic spell when economic conditions were so confounded by the coronavirus that the Fed stopped making projections altogether, U.S. central bankers now like what they see.
Even as they concede the riots by supporters of President Donald Trump that shut down Congress last week and concerns about continued violence pose a risk, officials say the transition to a new administration on Jan. 20 and a likely accelerating vaccine rollout have left them optimistic.
They also point to consumers’ still-amply-stuffed war chests from last year’s federal relief efforts, including a $900 billion re-topping of aid approved just before year end.
“We have a trillion (dollars) in excess savings. We have checks coming in the mailbox. There will be enough demand” from consumers to keep the recovery on track, Fed Vice Chair Richard Clarida said last week in forecasting an “impressive” 2021.
If 2020 was when shutdowns and disease took the economy to “new and unfamiliar places,” Richmond Fed President Thomas Barkin said, “the future has finally come into clearer focus,” with vaccines likely leading to a fuller reopening by midyear.
Since the Fed last met in mid-December, there has been a whipsaw sequence of events around both the pandemic and U.S. governance, matters both critical to the economy’s performance.
A massive surge in coronavirus cases has been offset by optimism over the initial distribution of two vaccines. Confirmation of the Democratic Party’s control of both the executive and legislative branches was offset by outgoing President Donald Trump’s effort to subvert the electoral outcome, reaching a crescendo in last Wednesday’s assault on the Capitol.
Part of the upside scenario seen by Fed policymakers in recent days is based on the incoming administration of Democratic President-elect Joe Biden’s working more smoothly with a Congress controlled by his party to put additional fiscal support in place and fix what has been a rocky start to the vaccine’s distribution.
It is a unique challenge – managing the national security, legal and political fallout from last week’s events alongside the health and economic policy concerns looming over the country.
But the more the vaccine agenda slips, the worse the economy will fare, say economists who agree that when it comes to the immunization program, speed matters.
While they believe the initial slow vaccine distribution will accelerate and eventually end the health crisis, a faster versus slower vaccination rate translates directly into a faster or slower job recovery. It means the difference between less labor market “scarring” or more long-term harm for unemployed workers; between fewer defaulted loans and failed businesses or more bankruptcies and shuttered businesses; and between greater overall acceleration in output or a notably shallower rebound.
“The recovery is directly linked to the pace of vaccinations and its effectiveness both in terms of numbers, but also in terms of the confidence it instills in consumers,” Atlanta Fed President Raphael Bostic said on Monday. A disappointing rollout “could push us back several quarters” in returning the economy to its pre-pandemic level.
EVEN MODEST DELAYS MATTER
In a real-time reminder of how that dynamic works, as a new surge in the virus took hold in December, consumer confidence plunged, small businesses and restaurants appeared to cut back, and the economy lost 140,000 jobs.
Oxford Economics economist Gregory Daco said both his optimistic and pessimistic projections see the country fully vaccinated this year. But the vaccinated share of the population hits 92% in August if things go fast versus 68% if they go slow. For the economy, that’s the difference between growth of 5.2% for the year versus just 3%, a gap of about $800 billion.
“You gain two months,” Daco said. “If the speed of improvement in the health situation is increased then you are going to see people spend more freely much earlier and it’d be a story of much stronger growth.”
Goldman Sachs economists estimated the initial stumble with inoculations has already cost developed nations more than half a percentage point of growth for the year.
Graphic: The race to vaccinate https://graphics.reuters.com/USA-ECONOMY/VACCINE/dgkplqrlavb/chart.png
SOUTH DAKOTA VS CALIFORNIA
As of Monday the Centers for Disease Control and Prevention said about 2.7% of the U.S. population had received at least one vaccine dose, with the two formulations approved so far in the U.S. both requiring a second shot.
But that obscures a broad divergence among states that could pose an economic challenge of its own if economically more important parts of the country are slower to immunize. The current national leader in terms of vaccination rates, at 5.5% of its population, is South Dakota, a state that ranks near the bottom in terms of economic output.
California, accounting for about 10% of gross domestic product, lags the national average in terms of vaccinations, with under 2% of its population immunized so far. Georgia, a top 10 economy, has the lowest current vaccination rate at 1.1%.
To maximize growth “you need homogenous response and diffusion,” Oxford’s Daco said. Otherwise, “You are going to see people be much more cautious going to some regions, travel is still impacted, and generally you see a multi-speed economy.”
(Reporting by Howard Schneider; Additional reporting by Ann Saphir; Editing by Dan Burns and Leslie Adler)
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.
