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The road ahead for the U.S. economy looks pretty clear, but a few potholes are looming – MarketWatch

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Sometimes it helps to look in the rear-view mirror to see what lies ahead for U.S. economy. And what it shows is an open road with just a few potholes.

We’ll get a lot of rearview looks this week, including snapshots of consumer spending, business investment and gross domestic product at the end of 2019.

What they are likely to show is a mixed bag — just like the outlook for the economy in 2020.

Consumer spending is still pretty healthy — if not as strong as it was last spring and summer. The soaring stock market, easing trade tensions with China, a rebound in exports and a frothier housing market also point to steady if lackluster economic growth in the months ahead.

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

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

The biggest drag on the economy has come from business investment and production. Business investment fizzled in 2018 and 2019, as the U.S. trade war with China intensified. Eventually manufacturers were forced to scale back as exports sagged.

Those two contrasting forces are expected to produce a modest 2% increase in GDP in 2019. The report comes out Thursday.

See: MarketWatch Economic Calendar

The freshly signed “phase one” trade deal with China should help unloosen some investment this year, economists say, but probably not a lot. The two countries are still at odds over a handful of very sensitive issues and are unlikely to make any major headway until after the 2020 U.S. election.

The election itself, what’s more, is another wild card that could offer a stark choice between two diametrically opposed economic visions for the United States. Businesses might hunker down to see how the vote is shaping up before taking the plunge on major investments.

Surveying the landscape, the Federal Reserve is widely expected to stand pat at its first big meeting of 2020. The central bank cut interest rates last year to shield the economy from the trade dispute with China, a strategy shift that reinvigorated a moribund housing market.

Read: New jobless claims rise to 211,000 in mid-January, but still show very few layoffs

Chairman Jerome Powell has been stressing that the Fed won’t raise interest rates again until inflation meets and exceeds its 2% inflation target.

The Fed’s preferred PCE inflation gauge, released Friday, might show an increase but probably not enough to lift the yearly rate any higher than 1.7%.

With inflation low and the economy forecast to slow to around 1.5% in 2020, many economists think a rate increase is a long, long way off.

“A cut is still more likely than a hike in the near term since growth shocks can materialize faster than a persistent shift in inflation,” economists at Credit Suisse said in a note to clients.

One potential growth shock — an unexpected event harmful to the economy — is the outbreak of the coronavirus in China.

China has already quarantined millions of people to try to stop the spread of the disease, and if it harms the world’s second largest economy, the damage will spread far beyond the country’s borders. The U.S. is not immune, either.

“The economic impact of the Wuhan coronavirus is another unknown,” chief economist Chris Low of FHN Financial said.


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Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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