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Employment down, savings up, and an uncertain summer for the U.S. economy
June is here.
And as summer has arrives across the country, so too does something resembling a resumption of economic activity.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We’ve noted recently that economic data has stopped getting worse, building the case that the most severe impacts of the lockdown-related economic stoppage are behind us.” data-reactid=”22″>We’ve noted recently that economic data has stopped getting worse, building the case that the most severe impacts of the lockdown-related economic stoppage are behind us.
But this still leaves the economy a long way from healed.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="As Bank of America outlined in a note last month, the current recovery is likely to play out in three phases: lockdown, transition, recovery. We are now in the transition phase. But what this phase might look like continues to be informed by some of the jarring data coming out of the economy’s March-April lockdown phase.” data-reactid=”24″>As Bank of America outlined in a note last month, the current recovery is likely to play out in three phases: lockdown, transition, recovery. We are now in the transition phase. But what this phase might look like continues to be informed by some of the jarring data coming out of the economy’s March-April lockdown phase.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="What we know is that tens of millions of workers have lost jobs. Last Thursday, initial jobless claims data brought total filings for unemployment insurance since this crisis began to north of 40 million.” data-reactid=”25″>What we know is that tens of millions of workers have lost jobs. Last Thursday, initial jobless claims data brought total filings for unemployment insurance since this crisis began to north of 40 million.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="And on Friday, the April data on personal income, outlays, and savings served as another stunning entry in the history books. In response to mass unemployment, we know that consumers saved at a record rate, cut spending at a record rate, and saw incomes rise due to enhanced unemployment benefits passed through the CARES Act.” data-reactid=”26″>And on Friday, the April data on personal income, outlays, and savings served as another stunning entry in the history books. In response to mass unemployment, we know that consumers saved at a record rate, cut spending at a record rate, and saw incomes rise due to enhanced unemployment benefits passed through the CARES Act.
Taken together, this data really tells the simplest story of what happened in the U.S. economy during the most severe stage of this crisis — millions of people lost jobs and saved every penny they could as a result. How we go forward from here will be informed by fiscal policy, the spread of the virus, and how many workers are re-employed quickly.
“Consumer spending fell off a cliff in April, collapsing by 13.6% [month-over-month] while the annual momentum plunged to its weakest pace on record,” Lydia Boussour, senior U.S. economist at Oxford Economics, said in a note to clients. “Meanwhile greater benefit payments temporarily lifted income momentum to its strongest pace on record.”
The CARES Act boosted personal income in April while spending rose at a record pace amid massive job losses during the most severe stage of shelter-at-home policies hurting economic activity. (Source: Oxford Economics)
Boussour added that, “Amid extreme uncertainty, the savings rate spiked from 12.7% to 33.0% — the highest rate ever. This underscores how the global coronavirus recession is leading to more frugal consumer behavior which will dampen the recovery. This is particularly true as the boost from social benefits will gradually erode over time leaving households more financially constrained.”
And so it seems that Congress was able to keep U.S. consumers afloat while shelter-at-home policies and fears about the future kept most of those excess dollars coming into consumer stashed away. Savings during this initial phase of the pandemic and the recession could, it seems, help boost the economy into the second half of the year.
Michael Gapen at Barclays said in a note published Friday that, “under the assumption households have not spent the entirety of safety net payments already, the potential good news in the report on April personal income is that households have, on net, likely accumulated sizeable cash savings that could be spent in upcoming quarters should the U.S. economy successfully emerge from economic lockdowns.”
April’s personal income and spending data, then, serves as evidence of the consumer holding what amounts to economic dry powder as we emerge from shelter-at-home policies.
How quickly the labor market heals, however, is likely to be more important in shaping how eager consumers are to resume consumption in the months ahead.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This coming Friday, the May jobs report is expected to show the unemployment rate rose to 19.6% last month with another 8 million Americans losing their jobs, according to estimates from Bloomberg. In the view of some economists, the stubbornly high level of initial jobless claims shows that businesses which initially closed on a temporary basis early in this crisis are now closing permanently.” data-reactid=”45″>This coming Friday, the May jobs report is expected to show the unemployment rate rose to 19.6% last month with another 8 million Americans losing their jobs, according to estimates from Bloomberg. In the view of some economists, the stubbornly high level of initial jobless claims shows that businesses which initially closed on a temporary basis early in this crisis are now closing permanently.
The more time that passes without answers for businesses and consumers, the more these temporary disruptions become permanent. Which is the whole story of the “transition” economy and the summer of 2020 — how many temporary changes can be prevented from becoming permanent.
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.
