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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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Economy

Mark Carney to lead Liberal economic task force ahead of next election

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney will chair a Liberal task force on economic growth, the party announced Monday as Liberal MPs meet to strategize for the upcoming election year.

Long touted as a possible leadership successor to Prime Minister Justin Trudeau, Carney was already scheduled to address caucus as part of the retreat in Nanaimo, B.C., this week.

The Liberals say he will help shape the party’s policies for the next election, and will report to Trudeau and the Liberal platform committee.

“As chair of the Leader’s Task Force on Economic Growth, Mark’s unique ideas and perspectives will play a vital role in shaping the next steps in our plan to continue to grow our economy and strengthen the middle class, and to urgently seize new opportunities for Canadian jobs and prosperity in a fast-changing world,” Trudeau said in a statement Monday.

Trudeau is expected to address Liberal members of Parliament later this week. It will be the first time he faces them as a group since MPs left Ottawa in the spring.

Still stinging from a devastating byelection loss earlier this summer, the caucus is now also reeling from news that its national campaign director has resigned and the party can no longer count on the NDP to stave off an early election.

Last week, NDP Leader Jagmeet Singh ended his agreement with Trudeau to have the New Democrats support the government on key votes in exchange for movement on priorities such as dental care.

All of this comes as the Liberals remain well behind the Conservatives in the polls despite efforts to refocus on issues like housing and affordability.

Some Liberal MPs hope to hear more about how Trudeau plans to win Canadians back when he addresses his team this week.

Carney appears to be part of that plan, attempting to bring some economic heft to a government that has struggled to resonate with voters who are struggling with inflation and soaring housing costs.

Trudeau said several weeks ago that he has long tried to coax Carney to join his government. The economist and former investment banker spent five years as the governor of the Bank of Canada during the last Conservative government before hopping across the pond to head up the Bank of England for seven years.

Carney is just one of a host of names suggested as possible successors to Trudeau, who has insisted he will lead the party into the next election despite simmering calls for him to step aside.

Those calls reached a new intensity earlier this summer when the Conservatives won a longtime Liberal stronghold in a major byelection upset in Toronto—St. Paul’s.

But Trudeau held fast to his decision to stay and rejected calls to convene his entire caucus over the summer to respond to their concerns about their collective prospects.

The prime minister has spoken with Liberal MPs one-on-one over the last few months and attended several regional meetings ahead of the Nanaimo retreat, including Ontario and Quebec, which together account for 70 per cent of the caucus.

While several Liberals who don’t feel comfortable speaking publicly say the meetings were positive, the party leader has mainly held to his message that he is simply focused on “delivering for Canadians.”

Conservative House leader Andrew Scheer was in Nanaimo ahead of the meeting to express his scorn for the Liberal strategy session, and for Carney’s involvement.

“It doesn’t matter what happens in this retreat, doesn’t matter what kinds of (communications) exercise they go through, or what kind of speculation they all entertain about who might lead them in the next election,” said Scheer, who called a small press conference on the Nanaimo harbourfront Monday.

“It’s the same failed Liberal policies causing the same hardships for Canadians.”

He said Carney and Trudeau are “basically the same people,” and that Carney has supported Liberal policies, including the carbon tax.

The three-day retreat is expected to include breakout meetings for the Indigenous, rural and women’s caucuses before the full group convenes later this week.

This report by The Canadian Press was first published Sept. 9, 2024.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Here’s a quick glance at unemployment rates for August, by province

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OTTAWA – Canada’s national unemployment rate was 6.6 per cent in August. Here are the jobless rates last month by province (numbers from the previous month in brackets):

_ Newfoundland and Labrador 10.4 per cent (9.6)

_ Prince Edward Island 8.2 per cent (8.9)

_ Nova Scotia 6.7 per cent (7.0)

_ New Brunswick 6.5 per cent (7.2)

_ Quebec 5.7 per cent (5.7)

_ Ontario 7.1 per cent (6.7)

_ Manitoba 5.8 per cent (5.7)

_ Saskatchewan 5.4 per cent (5.4)

_ Alberta 7.7 per cent (7.1)

_ British Columbia 5.8 per cent (5.5)

This report by The Canadian Press was first published Sept. 6, 2024.

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