Economy

The Secret of America’s Economic Success

Published

11 months ago

October 23, 2023

When Covid-19 struck, the initial economic impact was devastating. Large parts of major economies shut down, both because of official lockdowns and because people feared that in-person interaction would expose them to infection. In the United States, 20 million jobs suddenly disappeared.

At the time, there was widespread concern that the pandemic would leave lasting economic scars. After all, the 2008 financial crisis was followed by a weak recovery that left real gross domestic product in many countries far below the pre-crisis trend even a decade later. Indeed, as we approach Covid’s four-year mark, many of the world’s economies remain well short of full recovery.

But not the United States. Not only have we had the strongest recovery in the advanced world, but the International Monetary Fund’s latest World Economic Outlook also points out that American growth since 2019 has actually exceeded pre-Covid projections.

There’s a lot of terrible noneconomic news out there right now. But let’s take a moment to celebrate this good economic news — and try to figure out what went right with the U.S. economy.

It’s true that one recent poll found that a majority of Americans and 60 percent of Republicans say that unemployment is near a 50-year high. But it’s actually near its lowest level since the 1960s.

Meanwhile, retail sales are strong, and the rate at which workers are voluntarily quitting their jobs is high, which normally indicates a good labor market in which people are confident of finding new jobs.

What about inflation? When you use comparable measures, America also has the lowest inflation rate among major economies.

Can we trust government data here? I’ve been having some fun with a project called Truflation, which supposedly uses the blockchain and was backed in part by crypto types and which I suspect was intended to show that official inflation was greatly understated. What its numbers actually show is a steep decline in inflation over the past year.

U.S. economic success, then, is real, and remarkable. How did we pull it off?

Part of the answer, to be fair, is luck. Russia’s invasion of Ukraine caused a major energy shock in Europe, which had come to rely on imports of Russian natural gas. America, which exports gas, was much less affected.

A second, probably more important factor was that the United States pursued aggressively expansionary fiscal policy. In early 2021 the Biden administration enacted a very large spending bill. Many economists were extremely critical, warning that this spending would fuel inflation, which it probably did for a while. But inflation has subsided, while “Big Fiscal” helped the economy get to full employment — arguably the first time we’ve had truly full employment in decades.

A strong job market may in turn have had major long-term benefits, by drawing previously marginalized Americans into the work force. Remember the so-called great resignation? In reality, the percentage of U.S. adults in their prime working years participating in the labor force is now at its highest level in 20 years. One number I find especially striking is labor force participation by Americans with a disability, which has soared.

One last thing: When Covid struck, all advanced countries took strong measures to limit economic hardship, but they took different approaches. European governments generally paid employers to keep workers on their payrolls, even if they were temporarily idle. America, for the most part, let layoffs happen but protected workers with expanded unemployment benefits.

There was a case for each approach. Europe’s approach helped keep workers connected to their old jobs; the U.S. approach created more flexibility, making it easier for workers to move to different jobs if the post-Covid economy turned out to look quite different from the economy before the pandemic.

My conjecture — and that’s all it is — is that the U.S. approach turned out to be the right one. Covid appears to have had lasting effects on what we buy and how we work — most obviously, working from home appears to be here to stay — while high labor force participation belies fears that laid-off workers would never come back. So America’s Covid response, even though it temporarily led to high measured unemployment, may have set the stage for a strong recovery.

No doubt there were other factors behind America’s remarkable economic success story. But one thing is clear: We have been remarkably successful, even if nobody will believe it.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

1 day ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

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

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

1 day ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

2 days ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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