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The Fed rescued the US economy in 2019, but Trump wants more help in 2020 – CNN

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The Fed rescued the US economy in 2019, but Trump wants more help in 2020 – CNN


“Would be sooo great if the Fed would further lower interest rates and quantitative ease,” Trump tweeted on Tuesday, less than a week after the US central bank signaled it would be hitting the pause button on any more rate cuts going forward. “The Dollar is very strong against other currencies and there is almost no inflation. This is the time to do it. Exports would zoom!”
The President campaigned on promises of 3% growth, and is presiding over somewhat less than that, with a final report issued Friday showing respectable 2.1% growth for the third quarter. But the economy is getting rave reviews, with 76% of respondents in a new CNN poll conducted by SSRS rating economic conditions in the US today as very or somewhat good, significantly more than those who said so at this time last year (67%). This is the highest share to say the economy is good since February 2001, when 80% said so.
CNN Poll: US economy receives its best ranking in nearly 20 years
That’s in part thanks to the Fed’s success in keeping the US economy running smoothly over the last year, with unemployment hovering near 50-year record lows and the stock market hitting record highs.
Nevertheless, there are worrying signs. Business investment has fallen the last two quarters, the first decline in three years, according to the Bureau of Economic Analysis. Manufacturing layoffs have ticked up since the summer, and on Friday US Steel announced plans to close a mill near Detroit and cut 1,500 workers.
In response, the commander-in-chief has pushed unusual economic ideas, including publicly pressuring the Fed to cut rates to zero and even at times, suggesting rates should fall into negative territory. The Fed, however, has shown no signs of taking Trump’s suggestions.
At the Fed’s final meeting of the year, Powell and his colleagues signaled they would be sitting on the sidelines for some time. Powell said the three rates cuts this year were key decisions that helped to support the economy, which was showing signs of potentially tipping into recession over the summer.
“The Fed is basically saying, ‘Things are cool. We don’t really want to change things. We’re going to sit this one out for the foreseeable future,'” said Robert Frick, corporate economist with Navy Federal Credit Union. “That means they’ve done their job.”
Powell has himself argued it would take a lot for the Fed to move in either direction next year.
“We took strong measures,” said Powell at his press conference last week, referring to the cuts. “And we do believe that monetary policy operates with a long and variable lags and that it will take some time before the full effects of those actions are seen in the economy. So that’s one reason to hold back and wait.”
All of that could change if the President sparks a new trade war with Europe by imposing auto tariffs next year or if the economy starts to wobble from other shocks, including Boeing’s decision to shut down production of its 737 Max planes.
While the US economy has been a bright spot around the world, other countries have continued to struggle since the Great Recession a decade ago. It’s one of the reasons that inflation and wage growth have remained muted in the US.
“Things have changed radically over the last year,” said Frick. “I can remember when GDP was under 2% and analysts said, ‘There’s a recession around the corner.’ Now that our expectations — and indeed reality — has been taking down to a 2% growth level, we’re OK between 1.5% and 2%. We can go on for years at that rate.”
That may not be enough for Trump.
Trump has threatened to fire Powell on multiple occasions for not doing enough to juice the economy, a radical break with precedent walling off the central bank from political pressure. And while Powell, a sober former investment banker, has repeatedly insisted he was relying on data and not politics to make his decisions, the global economic turbulence stemming from Trump’s own trade wars prompted him to reverse his plans to raise rates this year and instead steadily drive them back down.
Even the President’s closest advisers acknowledge that appears to be over.
Stephen Moore, a conservative economic commentator who Trump considered for a Fed slot earlier this year, met with the President earlier this week at the White House to discuss the US economy and says Trump is still unhappy with the Fed and hankering for more cuts that he’s unlikely to get.
“Trump wants at least a couple more rate cuts from the Fed, and he’s not going to get it, that’s for sure,” said Moore, a former CNN contributor.
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, said Trump’s public criticism may have made members of the central bank’s Federal Open Market Committee hesitate more than they would have before cutting rates this year to counter economic pressures from the President’s turbulent trade war with China.
“It made it harder, and perhaps some people on the FOMC were reluctant to cut rates because among other things they didn’t want to appear to be succumbing to the President’s pressure,” said Wessel. “But bottom line, other than making things uncomfortable, I’m not sure it made a hell of a difference. And a bit of the irony is the President got what he wanted, but he seems unable to declare victory.”

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Economy

Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world

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Banks in Canada

Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.

The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.

But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.

In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.

The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.

The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.

OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.

Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.

That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.

The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.

The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.

Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.

($1 = 1.2326 Canadian dollars)

 

(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)

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Economy

Canada Economic Indicators

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Fed to focus on next steps to save economy – BNNBloomberg.ca

The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.

Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1

GDP Growth

Canada's GDP grew by 3% in July as more sectors reopened – CBC.ca

Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2

 

Employment Change and Unemployment

Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3

Consumer Price Index

Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4

International Merchandise Trade

This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5

Teranet – National Bank House Price Index

This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6

RBC Manufacturing Purchasing Managers’ Index – PMI

Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7

The Conference Board’s Consumer Confidence Index

The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8

Ivey Purchasing Managers Index – PMI

 An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9

Housing Starts

Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10

Home Sales

This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11

Retail Sales

Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12

Building Permits 

The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13

The Bottom Line

The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.

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Economy

Canada adds jobs for fourth straight month in May

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B.C. saw close to 55000 new jobs in Septmber

Canada added 101,600 jobs in May, the fourth consecutive month of gains, led by hiring in the education and health services sector as well as in professional and business services, a report from payroll services provider ADP showed on Thursday.

The April data was revised to show 101,300 jobs were gained, rather than an increase of 351,300. The report, which is derived from ADP’s payrolls data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

 

(Reporting by Fergal Smith; Editing by Alex Richardson)

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