Jobs, incomes and credit costs drive household consumption, residential investments and business capital outlays — a hefty 87.2% of the U.S. economy in 2019.
Those three variables look good.
With nearly 4 million people added to payrolls in the year to January, the unemployment rate was cut, over that period, to 3.6% from 4.4%. That is a remarkable development, indicating that, at the current level of labor supply, we have a fully-employed economy.
Personal savings were driven up by those rising jobs and incomes. As a share of disposable income, savings grew 8% last year, providing a significant buffer to maintain the households’ usual spending patterns during transitory income and employment changes.
Low credit costs have also made an important contribution to rising consumption and investment.
Surprisingly mild inflation pressures in an economy growing above its noninflationary potential have allowed the Federal Reserve to keep an exceptionally easy credit stance. Prices for personal consumption expenditures show an annual increase well below 2%, and the unit labor costs in 2019 remained stable at 2% for three consecutive years.
The Fed, therefore, has no compelling price stability concerns to abandon its current level of monetary accommodation, especially since the fiscal policy remains impaired by a high and rising public debt and expanding budget deficits.
The U.S. foreign trade — accounting for nearly one-third of the economy — is improving. As a result of that, net exports are becoming less of a drag on economic growth.
The first GDP estimates for last year indicate that the trade deficit on goods and services declined by 3.4%, while the volume of U.S. sales abroad remained roughly unchanged.
That good trade result is due to a substantial trade adjustment undertaken by China. In the course of last year, China’s surplus on goods trade with the U.S. was cut 17.6%. The long-overdue rebalancing of U.S.-China trade accounts could have been much larger had China made an effort to increase its imports of American goods and services.
Still, that’s a good start. Things are likely to get better because Beijing is pledging to step up its U.S. imports as soon as the coronavirus epidemic is brought under control.
By contrast, the U.S. is not making any progress on its large trade imbalances with the European Union and Japan. Last year, the U.S. trade deficit with those two economies came in at $247 billion. That is a 5% increase from 2018 and an amount accounting for nearly 30% of America’s total deficit on goods trade.
The trade problem with the EU and Japan is large enough to warrant an urgent policy attention. That should be a logical next step following recent trade agreements with China, Canada and Mexico.
And to support a revival of U.S. manufacturing industries, Washington should insist that a rebalancing of its trade accounts with China, EU and Japan should proceed on the basis of rising U.S. exports and supplies to American markets from local production facilities.
Putting all this together, the U.S. near-term growth prospects look good.
Could the U.S. do better?
Yes, of course, but to open up the possibility of a sustainably faster noninflationary economic growth, the U.S. has to increase the stock and quality of human and physical capital that would raise the economy’s current growth potential from 2% to the range of 3% to 3.5% — roughly the numbers we have seen during the 1990s.
That would require active labor market policies (investments in education, health care, vocational training, etc.) to connect some 95 million Americans who are currently not in the labor force with stable employment opportunities. A larger pool of skilled manpower would than need to be outfitted with best practice technologies to raise productivity growth. That would keep costs and prices at reasonable levels and make possible supportive monetary and fiscal policies.
Of all the industrialized economies, the U.S. is arguably the only one to have such a wide scope for faster noninflationary growth.
Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.
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.
