US COVID-19 Case Rate Reported to the CDC in the Last 7 Days
CDC
The good news is that a vaccine is definitely coming. But getting to herd immunity is going to take more than a quarter or two, especially given the resistance of about half of the American population to getting the vaccine, at least early on.
The economy is likely to remain soft until well after the pandemic passes. There are many reasons for this including a decade of poor policymaking and financial engineering. No doubt, there are going to be winners, most likely in the stay-at-home, e-commerce, and technology/communications spaces.
The climate in Asia, especially China, appears to be more attuned to fostering growth than most western countries, including the U.S.
Trends and Headlines
· “Number of Patients in Hospitals Skyrockets,” Wall Street Journal (WSJ), 11/18/20, A7, “US Covid-19 Deaths Top 250,000 As Hospitalizations Strain System,” WSJ, 11/19/20, A7. There were more than one million new cases of the virus in the U.S. in the middle week of November.
· With the new virus outbreak, business restrictions are being re-imposed. CA imposed a 10 pm to 5 am curfew statewide. NYC closed its schools (online only) and placed new restrictions on restaurants, bars and gyms. New Mexico and Michigan also enacted new restrictions. NYC’s MTA expects a renewed decline in subway, bus and train ridership of 40%-50% and is prepared to lay off nearly 9,400 workers. For affected businesses, increased layoffs have already begun.
· 90% of the S&P500 currently trade above their 200 day moving averages. That is really rarified air. Investors must be looking beyond the abyss. Or maybe they don’t yet recognize the irreparable economic damage that has already occurred. Back in ’09, there was a similar light at tunnel’s end. It was called TARP. But between TARP-1 and TARP-2, despite Fed rampant easings, the S&P500’s downdraft was 30%. Wile E. Coyote better not look down!
· Retail sales (+0.3%) missed expectations (+0.5%) in October. September was revised down by -0.3%, so, on net, sales were flat as a pancake. Core retail (excluding auto sales, gas, building materials…) rose +0.1%, but since September was revised down by -0.5%, this is a big negative on net.
· Industrial Production rose +1.1% in October. One would interpret this as good news, and it is likely that manufacturing is holding its own. But the Federal Reserve Regional Indexes foresee a different story for November’s reading.
NY Fed Empire Index: 6.3 November vs. 10.5 October
KC Fed Index: 11 November vs. 13 October
Philly Fed Index: 26.3 November vs. 32.3 October
· “Retailers Are Facing a Holiday Grinch,” WSJ, 11/18/20, B14. The seasonal adjustment factors for November/December expect huge holiday spending. This is not likely given the continuing high levels of unemployment, layoffs, job insecurity, the resurging virus, and today’s political uncertainties.
· An exception in the world, as far as economic growth is concerned, is China and Asia. They are largely over the virus because they implemented effective controls. Foreign money is pouring into the Chinese economy, not into their real estate market, as in the past, but into their IT, communications, and e-commerce sectors. Perhaps looking toward investing there might be a good idea.
· Zombie Companies, those that can’t cover debt-service payments from internally generated cash flows, now comprise 17.5% (527) of the largest 3,000 companies (Bloomberg), up from 11.2% (335) at the end of 2019.
These companies, with the aid of the Fed, added $1 trillion of debt since the beginning of the pandemic and their total debt now stands at $1.36 trillion (vs. $378 billion as of 12/31/19) or 3.6x larger. No wonder the bankruptcy cycle has flattened. And while the Fed has supported such zombies, a WSJ (11/18/20, A3) headline reads: “Federal Dollars Couldn’t Stave off Bankruptcy for Hundreds of Firms.” The article says that 300 companies that received $500 million in pandemic related government loans filed for BK, and that many other that also received funding didn’t file, they simply shut down.
Annualized Bankruptcies
Universal Value Advisors
A Decade of Poor Policy
Since the Great Financial Crisis, much of the “wealth creation” in the U.S. has been via financial engineering and debt creation. Much of corporate policy has been aimed at the company’s stock price with new debt used for stock buy-backs instead of for organic growth via investment in plant and equipment and expansion. Fiscal and monetary policies have been used to save “zombie” companies instead of the “creative destruction” that has been a trademark of U.S. capitalism for the past 150 years.
Unemployment-1
The weekly Department of Labor unemployment data are now showing deterioration as the virus resurges and business restrictions are reimposed. State Initial Claims (ICs) rose in the week ending November 14th to 743K from 725K. They also rose in the special Pandemic Unemployment Assistance program (PUA) to 320K from 296K. Combining the two, we see that new weekly layoffs remain north of 1 million (1.06 million the week of November 14 vs. 1.02 million the prior week).
Many of the CARES Act emergency programs end on 12/31/20. And, Treasury Secretary Mnuchin has told Fed Chair Powell that the Treasury will stop funding the Fed loan programs at year’s end. At least 12 million people are facing the end of unemployment support after 12/31. The Census Bureau (October 26th report) indicates that 14 million renters are at risk as rent moratoriums end, and that 2.7 million homeowners (November 8th report) are at risk of foreclosure.
Total State & PUA ICs
Universal Value Advisors
Besides the exhaustion of benefits in the state programs (normally 26 weeks), the PUA programs also close at the end of the year. Unless there is a new stimulus plan soon, not likely given the political vitriol now in play, the negative impact in Q1 is likely to be dramatic. In my view, in anticipation of an end to such programs, Q4 consumption is also likely to be lower. Wile E. Coyote – don’t look down!
Housing – Single Family, A Winner in Some Places
Single-Family housing starts were 1.18 million (Annual Rate), the highest level since April ’07 and now up six months in a row. The last time this happened was in ’05, and before that all the way back to ’82! Over that six months, single-family starts are up more than 30%. In contrast, over the same period, multi-family starts are down more than -6%. Year over year, single family starts have risen 29%, multi are down -18%. Clearly, the virus has caused a shift in preferences for less density and more privacy and space. This is likely the trend for the post-virus world with Work-From-Home sending the post-virus demand for office space deep into recessionary territory.
However, when you look at housing by region, it is clear that there is an exodus from the Northeast (NY, NJ, CT, MA…). The following table shows the data for housing starts by region:
Housing Starts.
Universal Value Advisors
Breaking down housing starts in the Northeast, October vs. September, single-family starts were down nearly -18%, while multi-family were off a whopping -85%. Can’t blame the weather; for most of October the weather was unseasonably mild. So what is happening? Living costs, including the cost of housing and significantly rising levels of taxation in the region, along with the newly found ability to Work-From-Home, or simply work elsewhere, appear to be at work here. This looks like an emerging new trend.
Unemployment-2
Everywhere I go, I see help-wanted signs. From what I read and from anecdotal experiences, companies appear to be unable to find entry level workers. In addition, more and more skilled and semi-skilled positions go unfilled. Yet, as discussed in this blog since April, we have record levels of unemployment, with concentrations in the lower wage earning groups (leisure/hospitality, retail…). Here is a non-exhaustive list of reasons we are seeing this employment disconnect in the U.S.:
Those laid-off are from different sectors than where current needs are. For example, recently laid-off leisure/hospitality or retail workers aren’t likely to look for manufacturing jobs or jobs on a plant floor;
Unemployment benefits, which are now starting to expire, are a disincentive for people to re-engage, especially when they are generous or even higher than can be earned in available employment;
Many are still waiting to be recalled. It is easier to go back to a job one has had and knows than it is to find a new and different one, or to start at the bottom if one has had some promotion at the old employer.
How long this disconnect lasts is unknown. Existing support programs expire at year’s end. Whether or not another stimulus occurs in the “lame-duck” period between Administrations is anyone’s guess. Likely, the next Administration will have a stimulus, but what it might look like and whether or not it depresses the need for employment like the CARES Act did is anyone’s guess. Much of the employment dislocation appears to be “permanent,” or, at least, “semi-permanent,” i.e., a leisure/hospitality worker is unlikely to end up as a plant floor worker.
Conclusions
Future consumer behavior has been permanently changed by the pandemic with the undoubted result being an increased savings rate. (The demographics of an aging population only reinforce this.) Higher savings, higher unemployment and employment dislocations imply slower future economic growth. Don’t expect that, once we have endured the near-term economic pain and get to the other side of the pandemic, economic growth will return to “normal” (which was less than 2%/year since the Great Recession). In order for the equity market to continue its upward march, underlying fundamental ratios will have to rise above even current lofty levels. While possible, probability says otherwise. Nevertheless, there are always winners. It’s just a matter of identifying them before everyone else does.
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.
