With central banks aggressively raising interest rates and the word “recession” suddenly on a lot of lips, everyone is nervously looking at every statistical release for signs that the economy has started to dip.
You don’t need to look all that hard. It has. Frankly, it has run out of room to go any other direction.
Recent data suggest that the wave of economic recovery from the COVID-19 recession has already crested. Fast-rising interest rates may be applying the brakes on an economy that has begun to decelerate anyway.
On the other hand, if central bank rate hikes signal that the party is coming to an end, they do so at a time when the punch bowl is full. It’s a long way to go before a slowdown from the peak of an economic cycle starts to look like a recession.
Consider last Friday’s employment report from Statistics Canada. Jobs grew a puny 15,000 in April, which, given margins of error, amounts to a statistical goose egg. This marked the first month since the recovery from the recession began that the labour market truly stalled, without any new wave of the virus or increase of public-health restrictions to blame.
Economists viewed the number not so much with alarm as resignation. The unemployment rate is the lowest on modern record, and businesses have been widely reporting acute labour shortages for months. The supply of available labour has effectively run dry.
Meanwhile, Canada’s housing market has taken a decided turn, as the Bank of Canada’s rate hikes have had an almost instant numbing effect. National home sales fell more than 5 per cent in March from the previous month, according to the Canadian Real Estate Association; preliminary figures for April indicate 20-per-cent-plus slumps in the long-booming major markets of Toronto and Vancouver.
The speed and severity of the sales drop suggest that the country’s housing market was ripe for a downturn, just waiting for a catalyst. With the Bank of Canada expected to raise rates considerably higher still over the next few months, housing could continue to slow for a while.
In both cases, these elements of the economy were giving off clear signs of being strained to their limits. A slowdown is not only inevitable, but healthy, and levels of activity remain elevated even with the pullback. Nevertheless, a slowing of hiring, and of residential real estate, implies deceleration of two of the most important drivers of Canada’s growth during the recovery from the COVID-19 recession. Their retreat is a pretty good indication that the economy, having already reached the limits of its capacity, is headed into the downside of the economic cycle.
In the United States, meanwhile, some economists argue that the descent was under way long before the Fed jumped into rate increases with both feet last week. The U.S. government recently estimated that the economy contracted at an annualized pace of 1.4 per cent in the first quarter of 2022. Economist David Rosenberg, of Toronto-based Rosenberg Research and Associates Inc., points out that since October, when U.S. real GDP peaked, the economy is down at a 2.4-per-cent annualized rate.
Sébastien McMahon, senior economist at Industrial Alliance Investment Management, says there is mounting evidence that high inflation is eroding U.S. consumer demand.
“Inflation is now pushing real (inflation adjusted) U.S. disposable income on a downward trajectory, meaning that purchasing power is contracting,” he said in an e-mail last week.
The economic view for Canada looks somewhat brighter, as the war in Ukraine has further elevated already high prices for oil and commodities, giving Canada’s substantial resource sector a lift. Nevertheless, with the United States accounting for three-quarters of Canadian exports, Canada’s economy is heavily exposed to any U.S. slowdown. At any rate, Canada’s exports to the U.S. soared 25 per cent over the past two quarters – suggesting that the export sector may be another part of the economy poised for a slowing of unsustainable growth.
The economy has had a great run – indeed, a remarkable run, given the severity and uncertainty of the COVID-19 recession – but we’re looking over the edge of the peak. From here, the risks to the downside are not only unavoidable, they’re now visible. That came into focus in last week’s sell-off in the stock market – which, as portfolios shrink in this adjustment of thinking, presents yet another drag on demand and growth.
Any time the economic cycle turns downward, there’s some danger that it ends in recession. That’s exacerbated when monetary policy is leaning hard into the descent, as it is now.
But let’s remember – and this is the Bank of Canada’s key argument – this isn’t an economic shock up-ending an economy in mid-expansion. We really are going into this from the top, from a position of considerable strength. The economy can decline a lot from this point while still maintaining healthy levels of activity, employment and growth. That’s certainly the hope, as the bank devotes its attention to shutting down inflation.
The one factor that could carry both the Canadian and U.S. economies through this is the huge glut of household savings that have built up over the pandemic. Those savings could sustain consumer demand even as employment gains wane, borrowing costs rise and inflation nibbles away at real incomes.
But the key drivers that have propelled consumption up until now – booming employment, surging housing wealth, rising stock markets – look unlikely to do so for much longer, if at all. Without them, inflation and rising borrowing costs will be pretty high hurdles for consumer demand to clear, even with those savings to draw upon.
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Rural development grants to spark Nicola Valley economy – Global News
The province announced on Friday a series of rural development grants in the Nicola Valley to support economic development and diversification.
This is the next step in the StrongerBC Economic Plan and the ongoing recovery efforts in Merritt following the floods in November last year.
“People in Merritt have been through a lot in the past year, and they know how important business recovery is for community rebuilding,” said parliamentary secretary for rural and regional development Roly Russell in a press release.
The provincial government is providing a $1-million rural development grant to the Small-Scale Meat Producers Association to build a community abattoir in the Merritt area.
This will provide meat processing and cut-and-wrap services to local farmers and ranchers.
“This project represents significant job and economic opportunities for the region, while ensuring local ranches, abattoirs and businesses are part of a strong, resilient B.C. food system,” said minister of agriculture and food Lana Popham in a press release.
“With the recent changes to B.C.’s meat-licensing system and investments in facilities like the Nicola Valley community abattoir, this revitalization of the small-scale meat industry makes it easier to produce, buy and sell B.C. meat in our rural communities, and helps strengthen our food security and food resiliency.”
The abattoir will be a government-inspected licensed facility with a full range of services to process red meat.
According to the province, local producers have been impacted by the lack of processing capacity. Julia Smith who is a pork and beef producer in Merrit is hopeful this new facility will help her business as well as other local producers.
“My partner and I moved to the Nicola Valley in 2016 planning to expand our business to meet the growing demand for well-raised, local meat. But we soon found that the processors we relied upon were not able to keep up with our production and we had to scale the business back instead of growing it.”
More than 900 people still displaced following Merritt flooding last fall
“We were on the verge of giving up. But now we are ready to press on, because this facility will allow us, and other local family farms and ranches, to grow and thrive while providing greater food security for the community.”
The province is providing a $1-million rural development grant to the Scw’exmx Tribal Council toward Gateway 286 in Merritt.
“After an unbelievable year of fires, floods, and a pandemic, we welcome the B.C. government’s $1-million grant that will bolster our rural community, support good-paying jobs and much-needed economic development,” said Spayum Holdings LP director and Scw’exmx Tribal Council Terrence (Lee) Spahan in a press release.
“The Gateway 286 project is a 30-plus-year vision of past and present Nicola Valley Indigenous Chiefs and these monies will take our commercial and tourism development one more step closer to reality. This project will enhance the experience of the [traveling] public by providing much-needed services, and it will provide good-paying jobs and entrepreneurial opportunities for the residents of the Nicola Valley.”
Meanwhile, the City of Merritt is receiving a $500,000 grant related to economic recovery for communities that were affected by the flooding. The grant will go towards completing economic development projects and initiatives to support long-term economic recovery.
This is in addition to $329,000 in provincial funding for the City of Merritt to update flood-hazard mapping and develop new flood-mitigation plans.
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China's Economy Contracts Sharply as Covid Zero Cuts Output – BNN
(Bloomberg) — China’s economy contracted in April, with Covid outbreaks and lockdowns dragging the industrial and consumer sectors down to the weakest levels since early 2020 as millions of residents were confined to their homes and factories were forced to halt production.
Industrial output fell 2.9% in April from a year ago, worse than the median estimate of a 0.5% increase in a Bloomberg survey of economists. Retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1%, higher than the forecast of 6%.
China’s economy has taken an enormous toll from the government’s stringent efforts to keep the virus at bay. Beijing has insisted on sticking with its Covid Zero strategy to curb infections, even though the high transmissibility of omicron puts cities at greater risk of repeatedly locking down and reopening compared to earlier strains.
“Covid outbreaks in April had a big impact on the economy, but the impact is short-term,” the National Bureau of Statistics said in a statement. “With progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”
China’s benchmark CSI 300 stock index was down 0.3% as of 10:04 am local time. The onshore yuan was little changed at 6.7917 per dollar. The yield on the 10-year government bonds rose 1 basis point to 2.83%.
Fixed-asset investment increased 6.8% in the first four months of the year, largely in line with projected growth of 7%, likely supported by the government’s push to expand infrastructure spending.
The economic shocks from the zero-tolerance policy have pushed China’s ambitious full-year growth target of around 5.5% further out of reach, and is weighing on the global growth outlook.
Beijing has signaled that policy makers will step up support for the economy, with Premier Li Keqiang recently urging officials to ensure stability through fiscal and monetary policy.
The People’s Bank of China took steps on Sunday to ease a housing crunch by reducing mortgage rates for first-time homebuyers. It left the interest rate on one-year policy loans unchanged on Monday, as inflation pressure and worries about capital outflows reduce the scope for more easing.
Monetary stimulus is proving less effective because of the stringent virus restrictions, with data on Friday showing businesses and consumers had little appetite to borrow in April. Credit growth weakened sharply last month, with new yuan loans sinking to the lowest level since December 2017.
(Updates with comment from statistics office)
©2022 Bloomberg L.P.
Potential of Seaweed on Economy Being Explored in Upcoming Webinar – VOCM
A webinar on the potential of seaweed as an economic driver is coming later this month.
The webinar, put together by The Laurentic Forum Consortium, will look at how coastal communities can use an abundance of seaweed to boost the economy, as seaweed is being used as fertilizer, diet supplements, bioplastics, animal feed, pharmaceutical products, and much more.
Webinar moderator and the executive director of the Canadian Centre for Fisheries Innovation, Keith Hutchings, says seaweed farming could provide opportunities in Newfoundland and Labrador.
He says if utilized correctly, communities and regions can add one more industry to help sustain them.
The webinar is taking place May 19.
The Laurentic Forum consortium invites you to join us on May 19, 2022, to discuss the tremendous opportunity and potential associated with the seaweed industry.
— Laurentic Forum (@ForumLaurentic) May 11, 2022
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