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The stock market is not the economy – Morningstar.ca

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Bad news, good news
In 1982, the U.S. unemployment rate started high and finished higher. It entered the year at 8.6% and concluded at 10.8%, its steepest level since the Great Depression. That was the first time that I had paid attention to employment statistics, because I was approaching my college graduation, and I must confess I was worried. (Correctly, as it turned out: I would not land a permanent job until summer 1984.)

To my surprise, stocks surged in 1982. The S&P 500 gained 21.6% on the year, well above its average. That made no sense to me. Not only was unemployment rising, but seasonally adjusted gross domestic product fell during every quarter of 1982. The media called it “the Reagan recession.” (It wasn’t until later that I realized presidents cause neither busts nor booms.)

What I did not know, because I was not then an investor, is that stock prices are only tenuously connected to general economic conditions. For one, stocks anticipate future developments rather than dwell on current affairs. For another, neither employment statistics nor GDP growth directly affect equity prices. The primary drivers are instead two sets of expectations: 1) future earnings and 2) future interest rates, with the latter being used to discount the former.

Disconnected
Later I learned that it is difficult to find even an indirect relationship between a country’s GDP growth rate and its future stock-market returns. In perhaps the most widely cited of such studies, London Business School professors Elroy Dimson, Paul Marsh, and Mike Staunton found a negative correlation between national per capita GDP growth and stock performances. (When aggregate GDP growth was substituted, the correlation became slightly positive.)

In theory, expansion floats corporate boats. In practice, many factors affect whether an economy’s general success reaches companies’ bottom lines. Managements may squander their good fortunes by making poor investment decisions. Workers may collect the gains instead, through wage inflation. Or governments may enjoy the benefits, through corruption or excessive taxes. The economy is not the stock market.

This year has powerfully reinforced that lesson. Unofficially, U.S. unemployment is currently far above 1982’s apex, although the official numbers are lower, as they do not count workers who have been sidelined but who expect to return to their positions. At negative 4.8%, the first quarter’s USGDP slide was deeper than any suffered in 1982, and of course that was only the beginning. The second quarter’s GDP decline is forecast to approach 30%.

Yet stocks have rallied strongly, even as the economic news has deteriorated. (When stock prices began to rise in late March, the consensus second-quarter GDP outlook was for an 18% decrease. Since then, stock prices have steadily climbed, while the GDP predictions have steadily fallen.)

The Few and the Many
To be sure, the headlines do not relate the full story. The S&P 500 has recovered so powerfully as to make its year-to-date loss of 12% unmemorable, aside from the abruptness of the path. Meanwhile, small-company indexes have fallen twice that far, and small-value indexes, which represent the largest number of publicly traded companies, are down 30%. Those are genuinely poor results.

Two additional factors have weakened the already tenuous link. One is the increasing divergence between the “have” companies and the “have nots.” The other has been the federal government’s aggressive intervention.

While most businesses are at best struggling, a happy few are booming. This fact is not only reflected in the performance gap between the large- and small-company indexes, but also by the disparity in fortunes between public and private companies. Because publicly traded firms operate nationally (if not internationally), they tend to be technologically capable and therefore positioned to compete during social distancing. Local businesses, in contrast, are likelier to be brick-and-mortar affairs that are hampered by movement restrictions.

In other words, that millions of workers have been released by local businesses–or national firms in industries that have been devastated, such as airlines and hotels–is relatively immaterial to the stock market’s leaders. As long the layoffs don’t lead to a ripple effect, wherein the broader economic woes affect their revenues, their stocks quite logically can rise even as other businesses fall.

John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar’s investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

This article has been edited for a Canadian audience

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Economy

Unemployment rate hits new record even as economy adds jobs – CP24 Toronto's Breaking News

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Jordan Press, The Canadian Press


Published Friday, June 5, 2020 5:18AM EDT


Last Updated Friday, June 5, 2020 3:25PM EDT

OTTAWA – Canada’s employment minister says the federal government is rethinking a key COVID-19 benefit so workers have more incentive to get back on the job, in an effort to maintain a surprising boost in job numbers from May.

Statistics Canada reported that the country got back 289,600 jobs in May – which mirrored a similar bump in the U.S. – after three million jobs were lost over March and April and about 2.5 million more people had their hours slashed.

Provincially, Quebec led the way, gaining 231,000 jobs as it became one of the first provinces to ease restrictions, doing so just before Statistics Canada collected data the week of May 10. Ontario was the only province with losses, albeit at a slower pace than in March and April.

Combined with more people reporting getting regular hours, the agency said Canada had recovered only 10.6 per cent of employment losses and absences related to the COVID-19 pandemic.

Friday’s jobs report showed the unemployment rate in May rose to 13.7 per cent, the highest level in more than four decades of comparable data. But that’s because more people started looking for work – meaning the rate shouldn’t be taken as a sign of underlying weakness, said CIBC senior economist Royce Mendes.

The unemployment rate is a measure of the people looking for work who can’t find it, meaning it can actually decline if job-seekers give up, or increase as formerly discouraged seekers see new signs of hope.

Still, the monthly labour force survey showed that men gained back more jobs than women, resulting in a wider gender gap in employment losses as a result of COVID-19, and that the pandemic continued to disproportionately affect lower-wage workers.

To keep gains going, business and labour groups called for a revamp of the Canada Emergency Response Benefit and the employment insurance system.

The first cohort of recipients of the $500-a-week payment will max out their 16 weeks of benefits in early July. Some may qualify for employment insurance, while others may not have any work available, meaning significant drops in income that could hamper the path to recovery, said TD senior economist Brian DePratto.

The Canadian Labour Congress and Canadian Chamber of Commerce separately called for reforms to the decades-old EI system, which the Liberals determined early on in the crisis couldn’t handle the influx of jobless claims.

Employment Minister Carla Qualtrough suggested all ideas are on the table when it comes to EI, and the future of the CERB.

“As we look into the months coming … we’ve got a different goal in mind: People need to get back to work safely,” she said at a midday press conference.

“So our thinking moving forward is how do we balance a need to continue to support workers, while not disincentivizing work?”

The most recent federal figures show 8.37 million people applied for the CERB, with $43.18 billion in payments as of June 2. Qualtrough said 1.2 million recipients no longer require it, although it wasn’t immediately clear why.

The Canada Revenue Agency also said this week that almost 190,000 payments of wrongfully received benefits had been made as of June 3.

Economists had been watching the CERB numbers as a proxy for Friday’s jobs report, which set up expectations for another round of job losses.

CERB figures will continued to be watched to track possible job losses and compare it to areas where there are signs of progress, said Brendon Bernard, an economist at the Indeed Hiring Lab.

“The strength of this rebound is going to depend to a significant degree on what happens with layoffs,” he said in an interview. “We could see some areas of the economy bounce-back as shuttered sectors reopen, but if layoffs continue, then it’s going to be tough for net job gains to be particularly strong.”

The total number of unemployed Canadians doubled from February to April, a surge driven by temporary layoffs that the vast majority of workers expected to last less than six months.

At the same time, there was a spike in the number of people who wanted to work but weren’t actively looking for jobs, likely because the economic shutdown has limited job opportunities. People not actively seeking work aren’t counted in unemployment figures.

The unemployment rate for May would have been 19.6 per cent had the report counted among the unemployed those who stopped looking for work – largely unchanged since April.

Statistics Canada said lower-wage workers recovered just over one-10th of the losses they experienced in March and April. But they continued to be a higher share of people working less than half of their usual hours.

Lower-wage workers were among the first- and hardest-hit during the shutdown, largely because they worked in industries like retail, restaurants and hotels that closed early in the pandemic.

Besides seeing less improvement generally compared with men, women with children under age six saw slower job gains than those with older children.

Rebounds were also weak for students and recent immigrants.

This report by The Canadian Press was first published June 5, 2020.

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Saskatchewan says economy is rebounding despite 12.5% unemployment rate – Globalnews.ca

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The Saskatchewan government is feeling confident its economy is on the rebound.

This comes despite the unemployment rate being 12.5 per cent at the end of May, according to Statistics Canada’s latest Labour Force Survey released Friday.

By the end of April, the unemployment rate in the province was 11.3 per cent. Saskatchewan’s unemployment rate is, however, the second-lowest among provinces and below the national average of 13.7 per cent.


READ MORE:
Saskatchewan loses nearly 53K jobs from March to April: Statistics Canada

“The Saskatchewan workforce is still being seriously affected by the COVID-19 pandemic but there are a number of signs that show Saskatchewan’s economy is both recovering faster, and was less impacted, than other provinces,” said Jeremy Harrison, immigration and career training minister, in a statement.

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“We have the second-lowest unemployment rate in Canada and the number of people working rose in May, which is a strong, positive sign in the COVID-19 era.  The Saskatchewan economy is positioned to strongly improve as we move forward with the Re-Open Saskatchewan plan.”

In Saskatchewan, there were 600 more jobs in May than April, while 87 per cent of those working in February were working in May.


READ MORE:
Nearly 21K jobs lost in Saskatchewan in March due to COVID-19: Statistics Canada

Since February, the number of hours worked in the province has dropped by 9.1 per cent. It’s the second-lowest decline in provinces. Nationally, the average decline in the number of hours worked over that same period is 19.3 per cent.






8:17
Coronavirus outbreak: All options on the table for benefits to help those impacted by COVID-19


Coronavirus outbreak: All options on the table for benefits to help those impacted by COVID-19

“Looking forward, we are seeing positive economic news in Saskatchewan, including announcements about helium and lithium recently,” Harrison said.

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“These new investments will bring jobs and investment to communities across the province and will help lift our economy out of the current challenges facing markets globally.”


READ MORE:
Coronavirus: Canada lost 1 million jobs in March

The province said businesses in Saskatchewan are faring better than other jurisdictions, claiming to have closed fewer than other provinces did.

[ Sign up for our Health IQ newsletter for the latest coronavirus updates ]

“This speaks to the strength of Saskatchewan’s economy and a strong reopening plan aiding in economic recovery,” the province said in a release issued on Friday.

Despite the optimism from the provincial government, the Saskatchewan NDP has laid out three actions it believes the province should take right now to strengthen the economy going forward.

First, to put Saskatchewan businesses and workers first through a Sask-first procurement plan that helps keep jobs in the province. Secondly, make the Saskatchewan Small Business Emergency program more accessible.






1:43
Saskatchewan tops up economic stimulus package by $2 billion


Saskatchewan tops up economic stimulus package by $2 billion

Finally, to end the six-month lockout between Regina’s Co-op Refinery and its workers, which would put 800 Saskatchewan people back to work.

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“New Democrats have urged Premier Moe and this Sask. Party government to protect jobs and small businesses, but clearly not enough has been done,” Opposition Leader Ryan Meili said.

“We know that Saskatchewan’s economy was already shrinking before COVID – and now the Premier’s lack of action to put Saskatchewan workers and businesses first is making things worse.”

Saskatchewan continues its reopen plan with Phase 3 beginning on June 8.

© 2020 Global News, a division of Corus Entertainment Inc.

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Uncertainty abounds as Nova Scotia economy reopens – TheChronicleHerald.ca

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Premier Stephen McNeil is encouraging people to “think local,  support local” as the province’s economy reopens Friday but the future of many small businesses struggling to meet government public health guidelines remain uncertain.

“Businesses will require our support on a go-forward basis,” said McNeil Thursday, before facing criticism from opposition leaders for what they deemed a poorly orchestrated and communicated reopening plan that has left businesses scrambling to reopen.

“There should be a massive information exercise by the Province of Nova Scotia that gives Nova Scotians confidence in the system that’s in play,” said Tory Leader Tim Houston.

Government announced its plan to reopen sectors of the economy, including restaurants and bars, salons and gyms last week. The premier has faced ongoing criticism for not offering clear direction on what specific public health requirements, including equipment, businesses need to meet in order to reopen.   

“The lack of information over the last few weeks and couple of months has really put businesses at a disadvantage,” said Houston. “I’m hearing from lots that are having difficulty getting supplies that they think they need for disinfecting. There’s a whole host of businesses that still don’t know what they’re required to do and what their customers are required to do.”

The province is offering a $25-million grant program that offers up to $5,000  for small business, non-profits and other operations, including dental offices.  The program is intended to help those groups with the costs of buying equipment and cleaning supplies needed to reopen. 

Sectors, including barber shops and hair salons, are frustrated over the limit of 10 occupants permitted in their businesses. Restaurants will essentially be reduced to half capacity. Many businesses are unable to secure protective equipment and cleaning supplies in time to reopen.

Meanwhile, many small businesses are still pleading for rent relief.  The federal Canada Emergency Commercial Rent Assistance Program, offering to cover 75 per cent of  rent for small businesses, has had limited uptake largely because it’s optional for landlords.

Business Minister Geoff MacLellan admitted that businesses would require added financial assistance at least through the initial months of the reopening. He said that’s especially true given that tourism numbers are predicted to drop dramatically this summer, a primary source of for many businesses reopening.

“I think that’s inevitable, to be honest,” said MacLellan. 

His department is working directly with associations representing businesses working to get their reopening plans approved by public health and government.  

“We’ll open up and see how things go the first few days,” said MacLellan. “I’m absolutely certain we’ll hear back from those associations.”

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