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Jack M. Mintz: How uncertainty has played havoc with the real economy – Financial Post

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As this decade comes to close, markets are at an all-time high. The Dow Jones index is finishing within sight of 29,000, almost three times its level on Jan. 2, 2010. In part, this reflects the seemingly unstoppable American expansion since the 2008 financial crisis. But two-fifths of the decade’s jump happened from Nov. 8, 2016, to Jan. 22, 2018. During those 15 months the Dow rose 41 per cent.

How come? The U.S. economy obviously didn’t expand by two-fifths. Nor did anyone expect it to. Interest rates didn’t fall — in fact, they stayed flat until the first quarter of 2018 when tighter monetary policy finally started nudging them up. Corporate profits were also pretty flat during that period.

No, the real reason for the super-charged Dow Jones was the shift in investor perception of risks after the election of Donald Trump as U.S. president on Nov. 8, 2016. In the wee hours of election night, after it first became clear Trump had won, the market fell sharply, with investors worried about a very unpredictable president-elect. By morning, however, as investors reassessed the election’s outcome, the Dow reversed itself and began its breathless climb of the next 15 months as the Republicans pushed deregulation and tax reform. Even the U.S. economy was uplifted, with GDP growth hitting close to three per cent and nominal wage growth besting five per cent by 2018, the highest levels since the third quarter of 2014.

Canadians have a very good life even if we seek to do better

Since the first quarter of 2018, however, things have been decidedly less rosy. The Dow has been choppy, rising not much more than 10 per cent since then. The reasons? Shifting monetary policy, a slowing world economy, stalled policy development in a divided Congress and uncertainty from trade disruptive negotiations.

Uncertainty plays havoc with the real economy. If households, businesses and investors perceive more upside than downside risk, they will consume and invest more. If the world looks more than normally uncertain, however, confidence declines. Economic forecasters rarely include uncertainty in their economic models since it relies on what John Maynard Keynes called “animal spirits,” which are not easily measurable.

On the other side of the pond, U.K. economic growth has dropped from an annual rate of 2.1 per cent in the second quarter of 2016 to 1.4 per cent in 2019. The June 2016 Brexit referendum clearly left businesses and investors uncertain about Britain’s future. After Theresa May gambled on an election that led to a minority Conservative government, Parliament was too divided to vote for any outcome to resolve Brexit one way or the other. Uncertainty began to pull the economy down.

This cost of Brexit uncertainty was analyzed recently by France’s Fabien Tripier, who estimated a £16 billion annual loss to the U.K. economy. He calculated the number of media reports that mention “economy,” “politics” and “uncertainty” to develop an index of uncertainty going back 21 years. With these data, he then estimated the impact of this uncertainty on GDP growth, keeping in mind that some shocks to the economy happen immediately (like stock market valuation) while other impacts take time to trend (consumption and investment). What Tripier finds is that instead of the U.K. economy growing 1.9 per cent per year after the 2016 Brexit vote, it should have been growing 2.3 per cent annually.

It is therefore no surprise that Boris Johnson won a large Conservative majority on the promise to get Brexit done. The electorate still remains closely split between Remainers and Leavers, but many voters wanted to see an end to the parliamentary stalemate. Despite uncertainties about the trade talks that will dominate Brexit news in 2020, the FTSE index has risen five per cent since election day, better than the Dow Jones (at just 1.5 per cent).

As for Canada, the TSE index has risen this past decade by 45 per cent, far less than the Dow Jones. And unlike U.S. exuberance since Jan. 1, 2017, the TSE rose by a meagre 1,260 points to 17,120, a total of just eight per cent in three years. Much of this reflects our mixed economic record, which has undermined confidence. The economy has been boosted by U.S. growth but has also been hurt by trade frictions, higher business taxes and regulatory obstacles that have deterred investment, especially in the resource sector. Overall employment has grown by a solid 4.5 per cent since January 2017 although not so quickly in the resource and manufacturing sectors. But nominal business investment has grown only four per cent during this time and remains below where it was in 2014. That compares with 15 per cent growth in the U.S. over the same period.

As for 2020, Canadian growth should continue without a recession this year even if the economy is not booming, especially in the resource-rich provinces. Forecasts are never sure things, however, and a recession, if one arrived, would surely blow a hole in federal and provincial budgets.

As we enter this new decade, we can at least be thankful we do not face a worldwide war or economic depression, as many of our grandparents did almost a century ago now. Canadians have a very good life even if we seek to do better. So to the many readers of this column, I wish you continued good health and success in the coming decade.

Jack M. Mintz is the President’s Fellow at the University of Calgary’s School of Public Policy.

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Industry Contributes Over $130B & Many Jobs to US Economy – DTN The Progressive Farmer

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The U.S. fertilizer industry made possible the production of $188.78 million worth of vegetables, fruits, nuts and feed for livestock in 2019. Livestock feed, also grown with fertilizer, helped to create an additional $177.53 million worth of meat, milk and other products such as eggs.

This data, it should be pointed out, were accumulated in 2019 before the COVID-19 pandemic. This has obvious economic effects on all aspects of business but the fertilizer industry was deemed essential by the federal government in March.

In TFI webinar on Thursday, Clark Mica, TFI Vice-President for Legislative Affairs, said the study was updated from a previous economic study. The data is especially useful for when TFI has discussion with policy makers regarding the industry, he said.

“The first question we get asked when we met with members of Congress is ‘how does your industry affect my congressional district,'” Mica said. “We then provide them with the economic data of the industry.”

John Dunham, Managing Partner of John Dunham and Associates who researched the data, said the findings are useful beyond the obvious lobbying uses. Communications to the general public and other various business activities are a couple of other avenues the economic data can be utilized, he said.

“Use it in your Rotary club meetings,” Dunham said. “Use the data when you are talking to local officials as well.”

The publication of the study is the culmination of months of compiling data, including the direct contribution and downstream impacts of the entire fertilizer industry. This would include the entire chain from manufacturers to wholesalers, retailers and goods and service providers.

“The fertilizer industry doesn’t just help grow the food on your dinner table, we also help grow the U.S. economy,” said TFI President and CEO Corey Rosenbusch in a news release.

“We often highlight that fertilizer is responsible for over half of the world’s food production, meaning without our industry we’d only have half as much food for the planet’s growing population,” he said.

“The data in the study shows that we’re not only feeding the world, we’re also feeding our national, state and local economies through direct and indirect employment and wages, the value of the crops and farm products produced with our plant nutrients, and the transportation and logistical network that moves plant nutrients to the farmers to be there exactly when they need them. The movement of fertilizer alone benefits our economy to the tune of nearly $9 billion annually.”

Russ Quinn can be reached at russ.quinn@dtn.com

Follow him on Twitter @RussQuinnDTN

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Healthy US economy failed to narrow racial gaps in 2019 – The Battlefords News-Optimist

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WASHINGTON — The solid growth that the United States enjoyed before the viral pandemic paralyzed the economy this spring failed to reduce racial disparities in Americans’ income and wealth from 2016 through 2019, according to a Federal Reserve report Monday.

Though Black and Hispanic households reported sharper gains in wealth than white households did, those increases weren’t enough to noticeably narrow the racial gaps. The typical white family possessed eight times the wealth of Black families and five times the wealth of Hispanic families in 2019, the Fed said.

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The Fed’s Survey of Consumer Finances, released every three years, analyzed incomes and wealth in 2019. The survey found that income for the typical U.S. family rose 5%, adjusted for inflation, from 2016 to 2019 to $58,600. That was weaker than the 9% income gain the typical family received from 2013 through 2016.

The survey provides a trove of information on family finances in the United States, from the percentage of households that own stock (53%) to the proportion that have a retirement account (50%).

While the report shows increases in income and wealth for lower-income and Black families, many economists worry that the pandemic has reversed those gains. Job losses this year have been concentrated among lower-income workers in the restaurant, hotel, retail and travel industries. Those workers are disproportionately non-white.

Some measures did show a narrowing of income disparities. Average income among the wealthiest one-tenth of American families fell 6%, largely because of a steep fall among the richest 1%, Federal Reserve economists said. By contrast, average incomes among the bottom 60% of families rose.

Yet average figures can be skewed by huge incomes at the very top. The Fed report noted, for example, that while average incomes for all families fell 3% from 2016 through 2019, excluding the richest 1%, average incomes rose 3.1%. Income for the richest Americans can fluctuate more sharply year to year than income for lower-income earners, Fed economists said, and likely fell because of smaller gains from stock, bond and property sales.

Economists typically look at median incomes, which reflect the midpoint of all earners, as a way to filter out the extremes. Median income among the poorest one-fifth of Americans rose 3%, while median income for the richest one-tenth increased 6%, the Fed said.

The median family income for whites grew 6%. For Black households, it was slightly better at 7%. For Hispanic families, incomes fell 1%. Median income for white families last year was $69,000, compared with $40,300 for Black families and $40,700 for Hispanics.

Poorer Americans and Black and Hispanic households did gain wealth from 2016 through 2019, mostly from an increase in home ownership and home values. But those increases came from such low levels that they didn’t much narrow overall income disparities, the Fed said.

Black households, for example, reported a 33% gain in net worth and Hispanic families 65%. Wealth in white households increased just 3%. While encouraging, median wealth for white families in 2019 was still much higher, at $188,200, compared with $24,100 for Black families and $36,200 for Hispanics.

Economic research has found that differences in inheritances are a major factor behind the racial wealth gap. A separate Fed note released Monday found that 30% of white families report receiving an inheritance — three times the corresponding proportion of Black families and four times that of Hispanic families.

The richest 1% of Americans owned one-third of the nation’s wealth in 2019, down slightly from nearly four-fifths in 2016. But wealth grew for the next-richest 9% of the population, the Fed said in another research note. So that the richest one-tenth of families owned 71% of wealth, unchanged from 2016.

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Report: Women, diversity are key to rebuilding Canada's economy – Wealth Professional

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Climbing the ladder
Women and diverse groups are also facing struggles to climb the corporate ladder to senior leadership roles.

“While we are making some progress with women on corporate Boards, reported at 25.3% of directors, the study highlights this doesn’t hold true for racialized women, reported at just 1.2% of directors,” said  Zabeen Hirji, Executive  Advisor, Future of Work, Deloitte. “White women out-numbering racialized women on corporate boards in Toronto by 12 to 1. The talent is there, it is policies and practices that need to evolve. We need to cast a wider net.”

The challenges are particularly evident in science and technology sectors (STEM).

Occupations within some of the high-growth and high-income sectors reveal the disparity of women trying to advance in STEM fields, generally filling lower-level jobs compared to their higher-level male counterparts.

However, women have made inroads into highly paid professions such as medicine and law.

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