Economy
One Year Later, Economy 'Has Come a Long Way' – NRF News
“The recovery is accelerating and the needed rebuilding of the economy is underway.”
NRF Chief Economist Jack Kleinhenz
WASHINGTON – With more vaccines in arms, federal stimulus putting money into pockets and consumers shopping again, the U.S. economy has made dramatic progress since the coronavirus pandemic brought activity to a near-standstill this time last year, National Retail Federation Chief Economist Jack Kleinhenz said today.
“The economy has come a long way compared with a year ago,” Kleinhenz said. “Both monetary policy set by the Federal Reserve and fiscal policy set by Congress and the White House have responded with swift and overwhelming force to support the economy. NRF is optimistic that the recovery is accelerating and the needed rebuilding of the economy is underway. The rate of vaccinations is ramping up, and the numbers paint an increasingly encouraging picture.”
Kleinhenz’s remarks came in the April issue of NRF’s Monthly Economic Review, which said conditions have “improved dramatically” after the “unpredictable shock” of the pandemic brought widespread shutdowns of retailers and other businesses beginning in March 2020.
This time a year ago, 22 million Americans had lost their jobs in two months, unemployment shot from a 50-year low of 3.5 percent to 14.7 percent and economic output fell by 31 percent, according to NRF’s report. By contrast, more than half the jobs lost have been recovered, the Federal Reserve expects gross domestic product to grow 6.5 percent this year and household net worth is at an all-time high at $122.9 trillion.
Kleinhenz said the increase in net worth came as home values rose and savings accumulated as consumers stayed home rather than eating out, traveling or attending entertainment or sports events. The wealth “provides consumers with plenty of purchasing power” that will likely be seen across consumer-facing industries.
The new round of $1,400 stimulus checks currently being distributed under the $1.9 trillion American Rescue Plan Act are certain to “fuel another leg of growth,” although they could be split between spending, saving and paying down debt, Kleinhenz said.
While the economy is stronger, the recovery has been uneven, Kleinhenz said. Despite continuing gains, employment remains soft with around 10 million still out of work and unemployment at 6.2 percent. Low-income workers and members of minority communities have been disproportionately impacted.
While some economists have expressed concern that the quickly growing economy could lead to inflation, Kleinhenz said he agreed with Federal Reserve officials who believe higher prices are unlikely to be sustainable. Supply will catch up with demand, the labor market is keeping wages in check and competitive ecommerce is limiting sellers’ pricing power, he said.
NRF has forecast that 2021 retail sales – excluding automobile dealers, gasoline stations and restaurants – will grow between 6.5 percent and 8.2 percent over 2020 to between $4.33 trillion and $4.4 trillion. That could top 2020’s growth of 6.6 percent, which broke the previous record of 6.3 percent set in 2004 despite the pandemic.
About NRF
The National Retail Federation, the world’s largest retail trade association, passionately advocates for the people, brands, policies and ideas that help retail thrive. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $3.9 trillion to annual GDP and supporting one in four U.S. jobs – 52 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.
Economy
Biden's Hot Economy Stokes Currency Fears for the Rest of World – Bloomberg
As Joe Biden this week hailed America’s booming economy as the strongest in the world during a reelection campaign tour of battleground-state Pennsylvania, global finance chiefs convening in Washington had a different message: cool it.
The push-back from central bank governors and finance ministers gathering for the International Monetary Fund-World Bank spring meetings highlight how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Economy
Opinion: Higher capital gains taxes won't work as claimed, but will harm the economy – The Globe and Mail
Alex Whalen and Jake Fuss are analysts at the Fraser Institute.
Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50-per-cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’s marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.
Second, the lock-in effect creates a drag on economic growth as it incentivizes investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
Budget’s capital gains tax changes divide the small business community
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7-billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing – that this move only affects the wealthy – lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital gains do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new startups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgment of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
Economy
Nigeria's Economy, Once Africa's Biggest, Slips to Fourth Place – Bloomberg
Nigeria’s economy, which ranked as Africa’s largest in 2022, is set to slip to fourth place this year and Egypt, which held the top position in 2023, is projected to fall to second behind South Africa after a series of currency devaluations, International Monetary Fund forecasts show.
The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.
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