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.
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.
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.
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.
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.
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.
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.
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.
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.
