On Friday, February 5, markets were set to rise no matter what the employment data showed. If they beat to the upside, that would validate the reflation/pent-up demand narrative. If they disappointed, well, that would simply mean more fiscal and monetary largesse (which financial markets love). Either way, heads markets rise; tails, ditto.
Labor Market Signals: Positive, Negative and Mixed
As it turns out, there was validation for every viewpoint in the latest Bureau of Labor Statistics Employment Report:
· Negative: The Establishment (Payroll) Survey grew just +49K disappointing the consensus view of +105K. Worse, December was revised down by -87K and November by -72K.
· Negative:
Leisure/Hospitality: -61K
Retail: -38K
Transportation/Warehousing: -28K
Manufacturing: -10K
Banking/Finance: -3K
· Positive: State and Local Government: +67K (But this means that payrolls in the rest of the economy were -18K!)
· Mixed: The Unemployment Rate (U3) fell to 6.3% (good), a decline that was mainly due to a -406K fall in the labor force, i.e., people dropping out having given up (bad).
· Mixed: The workweek rose to 35 hours (+0.9%). Hours worked in Leisure/Hospitality rose +2.4% and +1.3% in Retail, even as there were significant pink slips in these sectors. This tells us that businesses chose to meet demand by working the existing staff OT instead of hiring, just in case the rise in demand proved to be temporary.
· Negative: The diffusion index in the Labor Survey fell to 48.1 in January from 61.9 in December. Fifty is the demarcation between expansion and contraction, so this means more firms were laying off than were hiring.
· Positive: Average hourly earnings rose +0.2%. This was due to the mix of employment (the rise in state and local jobs which pay above average) and to the expansion of the workweek.
· Negative: “Permanent” job losses rose to 3.5 million; the number of unemployed for more than six months reached 4 million; the number of labor force dropouts is more than 4.3 million with more than 50% of these in their prime working years (ages 25-54); the average duration of unemployment rose to 26 weeks, up from 21 weeks in September.
· Positive: For the third week in a row, the Department of Labor (DOL) reported that there was a fall in Initial Unemployment Claims (ICs) in the state programs and in the special Pandemic Unemployment Assistance programs (PUA). The chart and table show a fall from 1.422 million the week of January 16 to 1.165 million the week of January 30. [Note: As indicated last week, the California data were troublesome showing huge declines for two weeks in a row. Last week, about half of those decreases were reversed. What caught my eye was the fact that Illinois data showed a -58% decline (-55,089). Remember, there were major winter storms in the northern part of the country during this reporting week. Other states in the path of the storms also showed declines, (though not to the extent of Illinois) indicating that IC filings may have been impacted by weather. Will know more with the next DOL release on Thursday, February 11.]
Total State and PUA ICs
Universal Value Advisors
It is quite clear that severe damage has been done to the labor market. The chart and table showing the number of people receiving some kind of unemployment assistance remains near 18 million. The first bar in the chart (left hand side) is the data for March 14, 2020 – call that the pre-virus “normal.” That number is 2.1 million. The downward slope from mid-October to mid-January, implies that it will be February 2022 before we reach the pre-pandemic level.
Total All Unemployment Claims
Universal Value Advisors
But wait! America’s businesses have figured out how to substitute technology for physical bodies. In 2020, productivity measures show a rise of 4%. This is a productivity growth rate we haven’t seen for nearly a decade. Thus, the February 2022 date mentioned above is likely nothing more than a number in my calculator! Because of the damage done by the pandemic to the labor market (automation, labor force drop-outs, permanent job losses…) a return to the robust labor market of 2019 may be years away!
Inflation
The passage of the $1.9 trillion “stimulus” package by Congress will likely add to the GDP, but the addition will be nowhere near the $1.9 trillion increase in debt. Still a possibility in the legislation is a timed step ladder to a $15/hour minimum wage. This will only accelerate the move by businesses to automate. The businesses that pay minimum wages are those in the struggling Leisure/Hospitality and Retail sectors. Expect more “permanent” job losses there as a result. While markets are worried about inflationary impacts from such increases, inflation from this source isn’t a real threat.
The “stimulus” does provide significant support for state and local governments, and those governments began rehiring (mainly school districts) perhaps in anticipation of such. Then, of course, there is the $1,400 checks for many American household members. The last two times we had “helicopter” money, early in the pandemic and then this past December, funny events occurred in the equity markets (the rise in the stock price of bankrupt Hertz last May, and of course, the recent GameStop
GME
rise and fall as many members of Gen Z and Gen Y, raised with videogames, appear to view the equity markets in that vein). We may well get another bout of such irrationality with the next drop of free money!
As an aside, “Helicopter Money” was a concept I laughed at when Ben Bernanke re-introduced this Milton Freidman notion in a November 2002 presentation to the Washington D.C. National Economists Club. At that time, he was a member of the Board of Governors of the Fed. But it is a reality in today’s topsy-turvy world. A continuation of such money drops has two implications: 1) each successive dose has a weaker and weaker impact on the economy because the populous saves more in anticipation of paying higher taxes (an economic concept known as Richardian Equivalence), and 2) massive debt increases weaken the dollar and risk its “reserve currency” status. This is a big deal because most international trade is done in dollars causing high demand for the currency. A loss of “reserve currency” status would weaken the dollar and be highly inflationary as the cost of imports and many foreign sourced raw materials would skyrocket. “Reserve currency” status, while not currently pressing, could become an issue if dollars really do grow on trees.
There has been a spike in interest rates in 2021. The 10-Year U.S. Treasury Note yielded 0.93% on January 4 and that yield was 0.56% at the end of last July. On Friday, February 5, the yield had spiked to 1.17%. Market participants are clearly worried about inflation. They are concerned about the enormous increases in debt, not only by governments, but also by the corporate sector.
In my past few blogs, I have argued that consumer inflation, in the classic sense of a rise in the Consumer Price Index (CPI), is nowhere in sight. The pent-up demand narrative makes no sense when the pent-up items (services like restaurants, airlines…) represent a small percentage of consumption and even a smaller percentage of GDP. In addition, we are currently seeing pent-down demand in “stay at home” items (appliances, home improvement…) which will only accelerate when the pandemic is over. The CPI is much more sensitive to rents, tuition, and medical costs which make up 45% of the index and are currently deflating.
Like recent market phenomena (Hertz, GameStop), a temporary untethering of markets from economic reality can occur, and this can persist for long periods of time. Interest rates can certainly rise from here, and they are likely to do so as long as inflation remains a worry. But when the inflation indexes don’t respond and reality sets in, interest rates will retreat. Remember, the Fed has already committed to keeping rates where they are for several years.
Things to Ponder
The worst stocks, from a fundamental point of view, significantly outperformed the overall market in January.
More “Helicopter Money” will hit most Americans’ checking accounts in the next several weeks. Money really does grow on trees in Washington D.C.
SPACs (Special Purpose Acquisition Companies) raised $83 billion in 2020, six times more than in 2019. These companies have no specific purpose except a promise (“hope”) that they will do something with the money thrown at them that will produce a return for the investor. Only “old-fashioned” people want to know what their money will be used for!
Over the past year, Bitcoin’s price has risen 600%, and Tesla’s
TSLA
by 800%. Gold is only up 13% and silver 49%. I am told by Gens Y and Z that gold and silver are out of date, and that Bitcoin is the new store of value. Personally, I’m a big skeptic.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
