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.
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.
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.
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.
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.
