Economy

Opinion | What if the economy is as normal as it’s going to get?

Published

5 months ago

April 3, 2024

Harry Miller

These days, when I tell people that I write about economics, I frequently get one of two follow-up questions.

“When will things go back to normal?”

Or “Why are people so sour on the Biden economy?”

These are different questions, but I think they have the same answer: Things are as normal as they’re going to get. Which is somewhat disappointing — even though, yes, jobs are plentiful and real incomes have grown faster for those at the bottom than for those at the top.

To see why swing voters might still be disappointed and ready for a political change, consider what things looked like to middle- and lower-income folks in January 2021. The world had shut down, but relief programs mitigated the damage, including unemployment benefits generous enough that about 70 percent of recipients were making more than they had by working. Lower-income households had been able to increase their consumption, while middle-income households saved and paid down debt. By the end of the pandemic, there was a noticeable drop in the number of households reporting they couldn’t easily cover a $400 expense.

Households not only breathed a little easier but also could dream bigger, and this culminated in the so-called Great Resignation. Thanks to their financial cushion, workers finally could leave workplaces they hated and take their time finding something better, maybe retraining for a different job, maybe just taking a mental health break or early retirement.

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It was a heady feeling, until inflation ate their savings.

This had to happen, as Matt Yglesias pointed out in a recent edition of his newsletter. Everyone had a lot more money, but we weren’t actually producing more stuff, so consumers effectively got into bidding wars for the limited supply of goods and services. Then, a lot of their wealth was consumed by the resulting inflation.

These folks aren’t actually worse off today, if your baseline is pre-pandemic; in fact, aside from inflation, they’re objectively better off in many ways. But if your baseline is what they thought was possible in January 2021, well, even if they still have some extra savings, they have less, in real terms, than they did three years ago. They probably still have a job, but it’s not as easy to get a new one as it was a couple of years ago.

And, of course, “aside from inflation” is a pretty big aside. People really hate inflation, even if their wages rise to offset it. In part, this is because they tend to attribute wage increases to their own efforts but blame price increases on someone else, as economist Stefanie Stantcheva suggested in a paper presented at a recent Brookings Institution conference. In part, it’s because inflation affects some more than others; not all incomes rise enough to offset inflation. And, in part, it’s because they hate the higher interest rates the Federal Reserve uses to control inflation, which supercharges the cost of debt-financed goods such as cars. Rate increases have also caused the housing market to lock up, as people squat on their old 3 percent mortgages.

The housing market is often what people are thinking about when they ask me when things will get back to normal. They don’t expect the absurdly cheap mortgages of the pandemic, of course, but they’d like to know when they’ll be able to get something reasonable again — at least under 5 percent.

And they don’t like my answer, which is: Maybe never? Maybe what they think of as normal actually isn’t.

Arguably, the Federal Reserve’s current struggle to get inflation down to 2 percent is more normal than the decade preceding the pandemic, when the Fed turned the money printers to “full stun” and still frequently failed to get inflation up to 2 percent. Before the global financial crisis, which slammed real interest rates on government debt down to effectively zero, people were happy to get a 6 percent mortgage. Heck, in the 1990s, people thought 7.5 percent was pretty decent.

The reason it doesn’t feel normal now is that most of us have lived our entire adult lives during a four-decade period in which inflation was falling across the globe — and interest rates along with it. This was thanks in large part to improved central bank policies, which is why we trust the Fed to get things back under control. But central banks might have had a lot of help from globalization, market liberalization and other trends that reduced inflationary pressures. At the same Brookings conference, economists Hassan Afrouzi, Marina Halac, Kenneth Rogoff and Pierre Yared presented reasons to believe those trends might now be reversing.

Aging societies and a mountain of pandemic debt will tempt governments to run big deficits, which can create inflationary pressure. Globalization has stalled, because of protectionist politicians and geostrategic conflict. Maintaining price stability might take more aggressively hawkish monetary policy than it did a few years ago, and that will hurt. Central bankers might face political as well as economic pressure to inflate.

The best protection against that pressure is stronger central bank independence — though, of course, politicians looking for an inflationary boost might try to move in the other direction. The best protection against that might be the simple fact, revealed in President Biden’s current polls, that people really, really hate inflation. But then, they won’t be thrilled with aggressive rate hikes or unemployment, either. It’s hard to know exactly what will happen if such tradeoffs become more normal.

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Economy

Statistics Canada reports wholesale sales higher in July

Published

12 hours ago

September 13, 2024

Anne Joseph

OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.

The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.

The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.

The personal and household goods subsector fell 2.5 per cent to $12.1 billion.

In volume terms, overall wholesale sales rose 0.5 per cent in July.

Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.

This report by The Canadian Press was first published Sept. 13, 2024.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

3 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

3 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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