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The economy probably grew a ho-hum 1.9% in the 4th quarter, but GDP might have a few surprises – MarketWatch



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The U.S. economy has been trotting along at 2% growth. It’s unlikely to speed up — or slow down — much in 2020.

The U.S. economy’s performance in the fourth quarter of last year is sure to show the same rift between upbeat consumers and wary businesses that has buffeted its performance in the past year — a divide that’s likely to persist into 2020.

Gross domestic product — the official scoresheet for the economy — likely grew about 1.9% in the fourth quarter, according to analysts polled by MarketWatch. Some forecast even slower growth. Here’s what to watch in the GDP report released early Thursday morning.

Consumer spending

Americans have spent rather generously over the past year and why not. Wages are rising at a steady 3% annual pace, unemployment has fallen to 3.5% or the lowest level in 50 years, and there’s no sign of recession in sight.

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It would have been hard to expect consumers to keep spending at quite the same pace in the fourth quarter. After all, spending surged by 3.2% and 4.6% at an annual rate in the prior two quarters, one of the best back-to-back performances since the current economic expansion began in 2009.

Read: Consumer confidence running high at the start of 2020, hits biggest peak in 5 months

Wall Street expects consumer spending to slow to a 1.9% annual pace in the final three months of 2019. Not bad, but not good enough to give a huge boost to GDP. Consumer spending is the single biggest contributor to GDP, accounting for as much as 70% of U.S. economic activity.

Read: These states had the lowest unemployment rates in 2019. What about swing states?

Unlikely source of strength

What could keep U.S. growth from dipping below 2% was a falling international trade deficit. Smaller trade deficits are a plus for GDP.

Although the trade gap jumped more than 8% in December, lower deficits in the first two months of the quarter mean that trade will add to U.S. growth figures.

The bad news? The smaller trade gap stemmed mostly from higher U.S. tariffs on China that temporarily depressed imports. That trend is already reversing itself since President Trump agreed a trade deal with China in December.

Wall Street expects international trade to become a drag on the economy early this year.

Read: Economic hit from coronavirus likely to be short lived, but it’s still ‘a little scary, frankly

Business blahs

Companies cut investment in the spring and summer as U.S. trade tensions with China ratcheted up, offsetting some of the strength of consumer spending.

While business investment was weak again in the fourth quarter, it might not be a big blot on the economy.

Business spending on equipment and structures likely slipped again, but lower interest rates have given the housing industry a shot in the arm. So it could be a wash: most economists predict flat business investment in the fourth quarter.

Read: Take away the military and durable-goods orders sink 2.5% at the end of 2019

Inventory pileup?

The wild card, as it often is, is the level of inventories. That is, goods produced or imported during the quarter but not sold yet. Inventories are only expected to grow one-third as much as they did in the third quarter.

As a result, lower inventory growth is forecast to knock almost one full percentage point off GDP. That’s a big headwind.

To be sure, inventory growth is one of the hardest numbers to pin down. It can rise or fall more than expected depending on how much consumers spend, businesses produce and wholesalers import. But it’s almost certainly going to be a negative in the fourth quarter.

Related: Share of union workers in the U.S. falls to a record low in 2019

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Why Mark Zandi says the US economy will narrowly avoid a recession



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CNN Business

Inflation is cooling. Consumers are still spending. And hiring is slowing — but not collapsing. That’s why Moody’s Analytics chief economist Mark Zandi is increasingly confident that the American economy will — narrowly — escape a recession.

“It’s going to be a struggle. It’s going to feel uncomfortable. But I think we are going to thread the needle,” Zandi told CNN Business in a phone interview earlier this week.

Zandi, whose forecasts are often cited by the White House, pointed to recent economic and market indicators that suggest the economy is not falling off a cliff despite widespread fears of a recession.

“The data over the last couple of months have been better than I would have thought. None of the financial market indicators suggest we have a recession dead ahead,” Zandi said.

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New numbers released on Thursday show inflation, as measured by the Federal Reserve’s favorite metric, eased in October. That is raising hopes the US central bank can slow the pace of its massive interest rate hikes as soon as this month.

The US economy also grew faster in the third quarter than initially estimated, bouncing back from two quarters of contraction.

And in a big positive for inflation-weary consumers, gas prices have plunged. The national average for regular gas is now below where it was when Russia invaded Ukraine and down sharply from the record high in June.

“My baseline is still no recession. That has not changed. But I do feel more confident than I did a few months ago,” said Zandi. “Inflation is moderating. Oil prices are stable to down. Employment growth is slowing. Layoffs are normalizing.”

Manufacturing stumbles, layoffs increase

Of course, there remains a great deal of uncertainty about what lies ahead and there are many reasons to be concerned about a potential downturn — including the most aggressive interest rate hikes from the Federal Reserve in decades.

Zandi said he wouldn’t argue with those who forecast a recession, conceding it’s going to be a “close” call.

A slew of major companies have announced layoffs of more than 1,000 jobs apiece in recent days, including AMC Networks, DoorDash and crypto exchange Kraken. That’s on top of mass layoffs that have wiped out tens of thousands of jobs in the tech sector, including major cuts at Amazon, Twitter and Facebook owner Meta.

Factories are also coming under significant pressure. A survey released Thursday by the Institute for Supply Management found that manufacturing activity contracted in November for the first time since May 2020.

“Overall, things are worsening,” one executive from a maker of electrical equipment, appliances and components said in the ISM survey. “Housing starts are down. We’re doing well against our competitors, but the industry overall is down. We’re sitting on cash (that is) tied up in inventory.”

‘Mild’ recession still a risk

Some business leaders are warning a downturn is likely still in the cards.

Bank of America CEO Brian Moynihan told CNN’s Poppy Harlow on Tuesday that the economy will probably slip into a recession next year — though he’s hopeful it will be a “mild” one.

In a report on Monday, S&P Global Ratings said just one of the nine leading economic indicators it tracks was in positive territory through October. S&P reiterated it expects the US economy to fall into recession next year, though it expects a “mild” recession in line with the 1969-1970 downturn. S&P forecasts peak-to-trough US GDP will decline by just 0.8%.

Zandi said he thinks all of these recession fears could end up working to the economy’s advantage by discouraging risky behavior, forcing businesses to keep cash on hand and persuading officials in Washington to make prudent decisions.

For instance, he pointed to President Joe Biden’s decision this week to call on Congress to act to prevent a crippling freight rail strike.

“I bet if we weren’t worried about a recession, the president wouldn’t have been so quick to go to Congress,” Zandi said. “Everyone is on high alert and very cautious. The fact we are so nervous about a recession makes it less likely something will go wrong.”

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Stats show Greater Sudbury’s economy grew at the end of 2022



Greater Sudbury has released results for the second and third quarters of 2022 that show economic growth in the area.

City officials said in the second and third quarters of 2022, permits for major projects across all sectors were issued with a total construction value of $64 million.

New Mayor Paul Lefebvre said that’s good news, but there is more work to be done to grow the tax base and attract new business to the city.

The amount of available land here compared to southern Ontario is a strong selling point, Lefebvre said.

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“In the GTA, they are running out of land (so) they gotta go up,” he said.

“Whereas we have a lot of capacity, a lot of infrastructure that is already in place, so how do we maximize that infrastructure?” Lefebvre acknowledges that industrial parks such as on Fielding Road are in poor condition, but said development should be directed to “where the infrastructure exists.”

“The idea is not to create new infrastructure,” he said.

(It’s) how do we make it easier and a lot more welcoming for these businesses to set up? So those are big investments, but the return on the investment is also great. That’s the way I look at it.”

The Greater Sudbury Chamber of Commerce said businesses along Fielding Road are big economic drivers in the city and the area needs improvement.

“We want to make sure (new businesses know) that we are here for you and here is what we are going to do make sure that you continue to want to expand your business here,” said Anthony Davis, of the Greater Sudbury Chamber of Commerce.

“We know you are underserviced and that is of top of mind and that it is a top priority to try and make sure those businesses are happy.”

Lefebvre said the city started working on an employment land strategy a few months ago to focus on areas that are ready for development and what improvements can be made.

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Inflation and interest rates to slow Alberta economic growth: ATB



The oil and gas sector will continue to help Alberta’s economy outperform the rest of the country, according to ATB Financial, but there will still be some pain for Albertans in the year ahead.

The Crown corporation’s 2023 economic forecast, released Wednesday, suggests the province’s real GDP will fall from five to 2.8 per cent but will continue to outpace Canada as a whole, which could see a recession in the new year.

“We’re just trying to stress that there is this sort of push-pull, positive-negative,” said Rob Roach, deputy chief economist at ATB Financial. “It is way better to be in Alberta right now with this overall growth, but it doesn’t mean everything’s going great for everybody.”

Alberta has benefited from high oil prices over the course of 2021, resulting in higher revenues and pushing the province to an expected $12.3-billion surplus.

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Oil companies were producing a record 3.88 million barrels of oil a day in September. With the Trans Mountain Pipeline expansion expected to be completed in the third quarter of 2023, an additional 690,000 barrels of exporting capacity will be brought online.

Roach said he expects a 20 per cent jump in oil and gas extraction capital spending next year and another five per cent in 2024. But that will likely be the last major capital investment in Alberta’s sector for the foreseeable future.

“It hits that wall after next year,” he said. “Without more pipelines, you just can’t keep expanding production.”

He says there is cautious optimism for the city, bolstered by the current energy market along with diversification of the local economy, specifically with record growth in tech. Still, there is a long way to go for economic balance between energy and other sectors.

“It does take time to add up to something,” said Roach. “It won’t come up to the point where it can rival oil and gas, maybe never. That’s a big, big tall order. But in terms of economic growth, economic activity, it has been positive and there’s no reason why it won’t continue.”

Consumers facing higher costs for rent, groceries and utilities are still in for a tough year, said Roach.

Inflation has cooled since its highs of 8.1 per cent year-over-year this summer, down to 6.9 per cent nationally in October, but there are still a number of global factors that will continue to have an effect.

The war in Ukraine remains a wild card in how it affects global energy prices, supply chains and other commodities such as grain.

Supply chains are improving, but there are still challenges, particularly if COVID-related restrictions cause further interruptions. China has already seen disruptions in a number of sectors, especially those that rely on computer chips.

While gas prices have fallen off from their summer highs, they are still contributing to rising costs at grocery stores and other retail, especially as diesel remains about 60 cents per litre higher than gasoline.

Real estate is also expected to remain strong in Alberta in 2023, bolstered by the migration of 60,000 people to the province in 2022 from other countries.

A home for sale and sold sign are seen in this file photo.
A home for sale and sold sign are seen in this file photo. Gavin Young/Postmedia

The price of housing has come off its record-setting pace from 2021 and early 2022, but Re/Max is predicting a seven per cent increase in the price of single-family homes in Calgary in its 2023 Canadian Housing Market Outlook, released Tuesday. Only Muskoka, Ont., and Halifax are forecasted to have a higher increase in the price of a home at eight per cent, while Canada as a whole is looking at a 3.3 per cent decrease in home prices.

In Calgary, the average home sold for $658,277 between Jan. 1 and Oct. 31, up 13 per cent from $585,025 over the same period in 2021.

The Bank of Canada has been attempting to slow inflation, raising its benchmark interest rate from 0.25 per cent in March to 3.75 per cent in October. Roach said he expects rates to go up another 25 to 50 basis points next week. The strategy has had the desired effect of lowering prices in most other real estate markets, but Calgary remains an outlier.

He expects the bank to stop increasing rates next year, but it will be 2024 before a decrease is likely.

“It’s unlikely that they’ll stop at four,” said Roach.

“We think there’s still enough inflation that they’ll have to get into that 4.25 range. It’ll be all year those interest rates will be high, though, even if they stop raising them.”

Twitter: @JoshAldrich03

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