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On election eve, the state of the US economy is a blurry one

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WASHINGTON (AP) — Help-wanted signs are everywhere. Employers are posting nearly two job openings for every unemployed American. Hiring is on track for its second-strongest year in government records dating to 1940. And the economy grew solidly over the summer.

From certain angles, the nation’s economic picture looks like a healthy one.

But the scene is being photo-bombed by an unsightly intruder: Chronically high inflation. Surging prices are straining family budgets and inflicting hardship on the most economically disadvantaged households. What’s more, the Federal Reserve’s drive to tame inflation through much higher interest rates is raising the risk of a recession by next year.

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With voting underway in the midterm congressional elections that culminate next week, many Americans are gloomy about the outlook for the economy and their own finances — encouraging news for Republicans who hope to regain control of Congress and ominous news for President Joe Biden’s congressional Democrats. A poll conducted in early October by The Associated Press-NORC Center for Public Affairs Research found that 46% of people felt their personal financial situations were poor, up from 37% who said so in March.

America’s economy is in a confusing place 2 1/2 years after COVID-19 upended business as usual. The brief but deep recession that erupted in the spring of 2020 was swiftly followed by an explosive recovery that overwhelmed global supply chains, causing shortages of goods and labor and fueling price pressures that have yet to ebb. What remains is an unusual blend of crushing inflation and a robust job market.

“The data,” said economist Megan Greene of the Kroll Institute, “is all over the map.”

Many workers have received decent pay raises from employers who are desperate to attract and keep staffers. But higher prices are wiping out those pay gains. Adjusted for inflation, hourly pay fell 3% in September from a year earlier — the 18th straight monthly drop.

“Wage growth isn’t keeping pace,” Greene said. “It’s great that people have jobs. But their standards of living are being whittled by inflation.”

Here’s a closer look at the economy’s vital signs, which are sending mixed signals to policymakers, businesses, forecasters — and voters:

——

THE OVERALL ECONOMY

Perhaps no economic barometer has been as head-scratching as the gross domestic product — the economy’s total output of goods and services. After surging 5.9% last year, the best mark since 1984, GDP fell into a funk in the first half of this year. It shrank at a 1.6% annual rate from January through March and then by 0.6% from April through June.

The first-half economic contraction was caused by factors that didn’t really reveal much about the health of the underlying economy. The decline was driven by a drop in companies’ inventories, a cyclical development that often reverses itself soon after, and a surge in imports, which reflected Americans’ keen appetite for foreign goods.

Last week, the government reported that GDP returned to growth in the July-September quarter, expanding at a solid 2.6% annual rate.

Yet the new picture wasn’t entirely cause for celebration. Consumer spending, which accounts for about 70% of U.S. economic activity, weakened last quarter: It rose at just a 1.4% annual rate, down from a 2% rate in the April-June period.

The entire third-quarter increase in GDP could be attributed to a jump in exports and lower imports, which together added nearly 2.8 percentage points of growth. That performance isn’t likely to be repeated. A stronger dollar has made American goods pricier overseas. And Russia’s war against Ukraine has contributed to a weakening global economy and lower demand for U.S. goods.

“If you look under the hood on those third-quarter figures,” Greene said, “it suggests that it wasn’t that strong, and we can’t expect it to continue.”

The economic outlook is also darkening as the Fed steadily jacks up interest rates. Since March, the central bank has raised its benchmark rate five times, including three straight hefty three-quarter-point hikes. It’s expected to do so again on Wednesday and in December.

The Fed’s policymakers have been aiming for a “soft landing” — raising rates enough to slow growth and bring inflation toward its 2% annual target without triggering a recession in the process. Most economists, though, doubt it can be done. They foresee a recession beginning sometime in 2023.

——

INFLATION

One reason for widespread skepticism about the Fed’s ability to stick a soft landing is that inflation is proving harder to defeat than policymakers had expected. The result is that more and larger rate hikes than originally envisioned will likely be required.

In September, the government’s consumer price index rose a higher-than-expected 0.4% from August and 8.2% from a year earlier. Worse, so-called core inflation, which strips out volatile food and energy costs to better assess price pressures, climbed 6.6% from a year earlier. That was the biggest such jump in 40 years.

What’s more, high inflation is hardly confined to the United States. In the 19 countries that share the euro currency, for example, prices soared 9.9% in September from a year earlier. The Russian invasion of Ukraine has driven up energy prices and disrupted food supplies.

In the United States, inflation has not only stayed high but has broadened from the goods sector of the economy to the much larger service sector — a vast area that includes everything from air fares, auto insurance and medical care to hotel rates, apartment rents and restaurant meals. Problem is, the farther inflation spreads, the harder it is to control.

——

JOBS

The job market is the clear star of the American economy.

Employers have shrugged off surging prices, rising interest rates and fears of a coming recession and just kept hiring. After adding a record 6.7 million jobs last year, the economy has tacked on a robust monthly average of 420,000 so far this year. The unemployment rate in September, 3.5%, matched a half-century low.

Still, the employment market is cooling. Job gains have slowed for two straight months — to 263,000 in September from 315,000 in August and 537,000 in July.

Employers posted 10.7 million job openings in October, the government reported Tuesday. That was up from 10.3 million, though down from a peak of 11.9 million in March. By historical standards, those figures were uncommonly high: For 15 straight months, openings have topped 10 million, a level they had never reached before 2021.

Americans are also enjoying extraordinary job security. Employers are shedding a monthly average of fewer than 1.4 million workers — on pace to surpass last year for the fewest layoffs in government records dating to 2001. The job market, though, is expected to deteriorate as the Fed’s rate hikes begin to bite.

——

CONSUMERS

American consumers, the lifeblood of the economy, have proved resilient through the ups and downs of the COVID economy. Their spending has both driven a strong recovery and ignited inflationary pressures.

Though higher prices have sapped their spending power, and the federal relief checks of 2020 and 2021 are long gone, Americans have kept spending, though at a moderating pace. Consumer spending rose 0.3% from August to September, even after accounting for inflation, the government reported.

It isn’t certain that consumers can keep it up. They have collectively used up much of the savings they amassed during pandemic, though their finances are still relatively strong, and are increasingly turning to credit cards. The U.S. savings rate has declined.

“It’s clear that the economy is slowing,” Kroll’s Greene said. “The question is how quickly. And the other question is, at what point businesses and consumers feel like they need to retrench. And that’s more a question of psychology than it is of economics.”

For now, businesses and consumers have enough cash on hand to keep on spending. They don’t have to cut back right away:

“But they might do so anyhow because there’s all this talk of a downturn coming and given there’s so much uncertainty in the economy.”

——

HOUSING

The Fed’s rate hikes have already claimed a victim: America’s housing market is reeling under the strain of drastically higher mortgage rates.

The average rate on a 30-year fixed mortgage, which was just 3.14% a year ago, topped 7% last week for the first time since 2002. Sales of existing homes have fallen for eight straight months.

The GDP report showed that housing investment plunged at a 26% annual pace from July through September. And housing construction in September was down 8% from a year earlier.

Home prices are still rising, supported by a limited number of houses on the market. But price increases are decelerating. The S&P CoreLogic Case-Shiller index of home price in 20 U.S. cities rose 13% in August from a year earlier. Still, that marked a slowdown from a 16% year-over-year gain in July.

As higher mortgage rates continue to derail home sales, Oxford Economics predicts, “the news on housing is only going to get worse from here.”

——

MANUFACTURERS

America’s factories are still expanding. But the outlook is dimming.

A manufacturing index issued Tuesday by the Institute for Supply Management, an organization of purchasing managers, showed that factories have been growing for 29 straight months. Still, the index fell in October to its lowest level since May 2020, when the economy was still struggling under the weight of COVID-forced business shutdowns. New orders, new export orders and hiring all contracted.

Likewise, the government reported last week that orders for long-lasting manufactured goods (excluding the volatile transportation sector) fell 0.5% in September.

That report “does not bode well,” wrote Kathy Bostjancic, chief U.S. economist at Oxford Economics. Factory-produced goods will likely be weakened by the higher dollar and stagnant economies overseas.

Bostjancic warned that the U.S. economy will likely weaken in the October-December quarter and slide in recession in the first half of 2023.

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Inflation, jobs, and how to make sense of the post-pandemic economy – Vox.com

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There’s no consistent story to tell about the economy right now. If you look at housing, everything’s a disaster. If you look at consumer spending, everything’s plugging along. If you look at the labor market, things are looking pretty phenomenal.

“There seem to be three different economies out there,” said Ethan Harris, global economist at Bank of America, in an interview. “You’ve got a housing market in recession, you’ve got a consumer who’s hanging in, and then you’ve got a hot labor market.”

The economy has been a bit of a conundrum to unpack for a while now, after the pandemic tossed multiple segments into disarray across the globe. In the United States, there was a quick but deep recession as millions of workers were laid off, businesses were shuttered, and the economy ground to a halt. The subsequent rebound has been unpredictable, to say the least. (Remember the lumber shortage? What about when nobody could find dumbbells?)

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The stock market soared throughout much of 2020 and 2021, only to sputter in 2022. Supply chain disruptions have eased, though the system remains far from perfect. Plenty of parts of the economy are quite robust, but everyone feels terrible about it anyway. Even so, many consumers are spending through it.

High inflation, which many policymakers hoped would be temporary, has stuck. The housing market that was booming until recently is now slowing due to the Federal Reserve’s interest rate hikes meant to curb inflation. There are now real fears that those efforts will lead to a recession, as they have in the past. Still, a major economic contraction doesn’t appear to be here — yet.

“I’m going to courageously go out on a limb and say we’re 50/50 on a recession,” joked Jason Furman, an economist and former chair of the Council of Economic Advisers under the Obama administration, in an interview.

It’s the type of prediction that sounds like a cop-out but is probably an honest reflection of the times: Multiple parts of the economy have gone a little haywire, and it’s not clear which of the normal rules apply and to what extent. Endless kinks — induced by the pandemic, Russia’s war in Ukraine, and continuing Covid shutdowns in China, among other factors — are still appearing and being worked out. It’s uncertain as of yet what might be a permanent dent.

Consumers and workers, policymakers and economists are all trying to put together the same economic puzzle with some pieces that just don’t fit. In the background lurks a sneaking sensation that everything in the economy that is going well could soon turn negative, especially if the Fed gets its way. It has indicated it might lighten up somewhat soon, but nothing’s for sure. That feeling of precarity is impossible to shake.

“It’s kind of like we’re in a china shop,” Claudia Sahm, founder of Sahm Consulting and former Fed economist, told me in a recent interview. One false move and the whole thing comes crashing down.

Nothing in the economy makes sense anymore because nothing has made sense for a while.

The economic arrows are pointing kind of everywhere

Generally, multiple parts of the economy move together. Different indicators, such as GDP (gross domestic product), income, employment, and industrial production, weaken at the same time ahead of a recession, or they strengthen when a recovery is underway. In this moment, that’s not the case, and distinct data points send a total picture of mixed signals.

Manufacturing output and industrial production are relatively flat, and factory activity has declined somewhat. Labor productivity during the first part of the year inexplicably plummeted, though it’s started to pick up some. Employment, on the other hand, has consistently continued to rise, with the US economy adding 263,000 jobs in November and wages continuing to rise. The number of job openings remains high. Inflation is cutting into wage growth, but wages are still rising, especially for people at the lower end of the income spectrum. New vehicle sales appear to be slowing as higher interest rates take their toll, but it’s nowhere near the toll those same higher interest rates have taken on the housing market.

“The labor market is lagging the broader slowdown due to record job openings coming into the year. The consumer is hanging in due to the still hot job market and massive excess savings. Service spending is solid in part due to pent-up demand left over from the shutdowns. The legacies of the Covid shock and record fiscal stimulus continue to be felt,” Harris wrote in a mid-November research note at Bank of America. “Put it all together and the lags from Fed policy tightening to the economy are even longer and more variable than normal.”

Different economists have different explanations for — or at least theories on — what is going on, but most acknowledge there’s no succinct, obvious explanation.

“Normally, you’d have everything going down together, but we don’t,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “The pandemic separated supply and demand in a manner that I’ve never seen before.”

Just take a look at the auto industry: more people wanted cars, new and used, during much of the pandemic. Those cars were nowhere to be found thanks to supply chain issues and other abnormalities. Something similar happened in the lumber industry. People took up home improvement projects and started building more housing in 2020. But the supply side at the start of the pandemic assumed the opposite would happen and slowed down production, and once they realized the pandemic-induced pickup in demand was happening, they were slow to ramp up.

Paulsen said that, now, the economy has, in a way, been “scared into conservative behaviors” because business and consumer confidence is so low and everyone’s worried about a slowdown on the horizon. “There’s been a lot of fear in this thing,” he said.

Furman acknowledged there’s “more of a sense that anything can happen than would normally be the case,” though he still tries to use standard economic relationships to figure out what’s most probable, even if he’s not at all certain they’re correct. “The biggest mystery of the past year has been how output’s been flat and employment rose, so there’s this disconnect between what employers are doing and how much companies are producing,” he said, noting that another disconnect is that “inflation is just a lot higher than what you’d think just from the unemployment rate alone.”

Not to be cliché here, but it really is the case that so much that’s happened over the past three years has been completely unprecedented. If we’d known a global pandemic was on the horizon in 2020, we’d all have probably had a lot more fun in 2019. That irregularity is what’s making it so hard to understand what’s going on now; there are so many new factors in the equation that the previous rules of the economic math might not entirely add up or apply.

“If you’d told me the price of cars had skyrocketed the way it did, or the fact that we had significant inflation of goods that basically reversed several decades of deflation in 2019, if you told me that was coming in the next couple of years, I would not believe you,” said Mike Konczal, director of macroeconomic analysis at progressive think tank the Roosevelt Institute. “I would have assumed a lot of crazy things would have happened for that to be true, and a lot of crazy things did happen.”

Everybody’s got a case of the economic icks

Plenty of parts of the economy are quite robust, but everyone feels terrible about it anyway. The University of Michigan’s consumer sentiment index has rebounded somewhat from its lows earlier this year, but it’s still well below where it was in the depths of the pandemic.

Even so, many consumers are still spending through inflation and even their own negativity. The mix of spending has changed — shifting more away from goods and back toward services — but it’s still happening.

Heading into the holiday season, it appears sales on Cyber Monday, which follows Thanksgiving, have hit a new record. Online sales on Black Friday hit a new record, too.

“It’s been amazing that consumer sentiment is just incredibly low, it’s like depths-of-the-financial-crisis low, it’s way worse than it was when the economy shut down due to Covid, and that’s not being reflected in people’s spending, which remains quite healthy,” Furman said. “There’s this disconnect between people saying negative things and not acting in a very negative manner.”

Furman also pointed to the results of the 2022 midterm elections as evidence that the way people are feeling about the economy and the way they’re acting is a little off. As a general rule, the party in power tends to do poorly in midterm elections, and especially given the state of inflation and gas prices (which have been very high but are now coming down some) heading into Election Day, many pollsters and pundits assumed the Democrats were doomed. But the “red wave” many anticipated did not appear. Republicans took the House of Representatives, while Democrats maintained control of the Senate.

As Vox’s Christian Paz noted, early exit poll data showed that most voters said they felt the economy was “not so good” or “poor” but also said that inflation was a moderate hardship on their families or not a hardship at all. “That suggests that even with near-record high inflation, voters were willing to consider other factors in their voting decisions — and not everyone cared to connect the economy to their vote for a Democrat or against a Republican,” Paz wrote.

Still, there’s no denying people feel quite bad about the economy, even if many segments of it are quite good. Ultimately, inflation has “canceled out” the good labor market, Konczal said — you can’t tell people the economy is good and to appreciate how many jobs there are. “People can’t eat job openings if their food budget has gotten a lot smaller,” he said.

Where the economy is headed, nobody knows

To be clear, the economy isn’t some impossible black box; there are plenty of things that are known.

The global economy, overall, is slowing. Inflation remains higher than it’s been in decades. In the US, monthly job growth has averaged hundreds of jobs a month. The Fed is trying to bring down inflation by raising interest rates multiple times this year. The expectation is this will lead to a slowing in the labor market that, thus far, hasn’t happened.

Harris told me he thinks the “three economies” he identified moving in different directions “are all going to turn weak because it’s just a matter of time with what the Fed is doing.”

The hope is the Fed’s efforts lead to a soft landing, meaning it’s able to cool the economy off without pushing it into a full-blown recession, but a recession risk isn’t off the table by any means. The Fed has indicated it’s taking into account the cumulative effects of its actions and that it’s aware there will be lags to those effects. Still, Fed Chair Jerome Powell has been clear he is focused on bringing inflation down.

“Without price stability, the economy does not work for anyone,” Powell said in a speech in August. “In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.”

Konczal said it’s “incredibly unclear” where the Fed goes next after it again raises interest rates in December. Its target for inflation is 2 percent, which is well below the 7.7 percent annual rate it was in October. But what if it comes down to, say, 3 percent or 4 percent? “There’s a question of whether you really want to hurt a lot of people to get inflation back down to 2 percent, which is a fake number, it is an arbitrary number,” he said.

In late November, Powell acknowledged he and his colleagues did not want to “overtighten” and that they might slow the pace of interest rate hikes as soon as December, comments that heartened markets. But he also said the fight to get inflation under control isn’t over: “Despite some promising developments, we have a long way to go in restoring price stability.”

There’s also much that’s out of the Fed’s hands, in terms of what impacts the economy. Russia’s ongoing war on Ukraine and China’s approach to Covid continue to weigh as well. And if the last three years have taught us anything, it’s that we have no idea what else could be around the corner.

Moreover, it’s not clear how many of the changes the economy has seen over the past year are temporary or what’s permanent. The push under the Trump and Biden administrations to build more in America marks a shift against globalization and toward more domestic sourcing and production. “The era of globalization is definitely over,” Konczal said. “It looks like our trade policy is going to be much more focused on building core industrial capacity in the United States, notably on things like green energy.”

Employers also remember how hard it has been to hire people and keep them on over the past few years, which may make them more hesitant to let them go now — though, as we’ve seen with the massive tech layoffs, that’s not true across all industries. With the Fed raising interest rates and otherwise tightening monetary policy, the era of easy money is over, at least for now. That has contributed to what looks like the end of the big tech boom and a slowdown in the still volatile crypto market, and it is clearly weighing on the overall markets.

I’ve said it before and I’ll say it again: Anyone who says they know exactly what is going on in the economy is lying. The same goes for anyone who says they know for sure where the economy is headed. Under all of the old rules, some things don’t make sense right now, and it’s not clear if it will all ever make sense again.

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Economy

Ontario Continues to Strengthen the Economy | Ontario Newsroom – Government of Ontario News

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Ontario Continues to Strengthen the Economy | Ontario Newsroom  Government of Ontario News



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Domestic demand drags Czech economy in Q3 as recession looms

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PRAGUE — The Czech economy shrank less in the third quarter than initially suggested, with domestic demand the main weak spot, while other data pointed to another decline in the fourth quarter, signaling the economy has likely entered a recession.

Czech gross domestic product (GDP) dropped 0.2% in July-September from the second quarter, the first quarterly decline since early 2021. On an annual basis, GDP rose 1.7%, the Statistics Office said on Friday.

An initial estimate in early November suggested a quarterly decline of 0.4% and showed 1.6% growth year-on-year.

“On the demand side, domestic demand was the main factor of the quarter-on-quarter GDP decrease (in the third quarter). Especially final consumption expenditure of households decreased. External demand had a positive influence,” said Vladimir Kermiet, director of the national accounts department at the statistics office.

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Some help may have come from the Czech car sector where producers like Volkwagen’s Skoda Auto have been working through backlogs caused by supply snags. The car industry accounts for one quarter of Czech industrial output.

Elsewhere in the region, Poland’s economy grew 0.9% in the third quarter, while Hungary reported a quarterly drop of 0.4%.

Surveys on Thursday pointed to more trouble ahead in the region as they showed manufacturing was in steep decline in Poland and the Czech Republic in November.

“One can talk of a high probability of a recession, because the fourth quarter can hardly be expected to show economic growth,” said Petr Dufek, chief economist at Banka Creditas. (Reporting by Robert Muller Editing by Mark Potter)

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