adplus-dvertising
Connect with us

Economy

The US economy has a momentum problem – CNN

Published

 on


A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

New York (CNN Business)If you’re reading this it means you’ve made it through the worst first half of a year for US stocks in more than 50 years. Congratulations.

Welcome to the second half, where any hope of relaxation has been dashed by nonstop talk of the US economy possibly slipping into recession
In America, a recession is officially determined by eight economists who deliberate in private. But a recession is commonly defined by analysts as two consecutive negative quarters of gross domestic product growth. 
Real GDP shrank in the first quarter of 2022, but monthly data suggests there may have been solid growth in the second quarter and spending picked up in Covid-impacted sectors like travel and entertainment.
The third quarter, however, isn’t looking so hot, says David Kelly, chief global strategist at JP Morgan Asset Management. He sees storm clouds gathering that threaten to seriously temper economic momentum. 
David Bianco, chief investment officer for the Americas at DWS Group, says his team has already trimmed GDP forecasts several times over the course of the year.
“In past cycles investors and economists would tend to focus on the demand side: How strong is the consumer?” he said on a recent call with reporters. “People make the arguments that the economy’s fine right now because the consumer is healthy. Our argument would be that this is an environment where the focus should be on the supply side.”
“The underlying problem is that inflation has been a function of not enough supply versus too much demand,” wrote Ivan Feinseth of Tigress Financial Partners in a note.  
But faltering demand could become a bigger problem. An end to stimulus checks, enhanced unemployment benefits, enhanced child tax credits and other programs that aided lower and middle-income households during the height of the pandemic could cause a drag on spending in the near future, said Kelly.
Kelly predicts that the end of these stimulus programs could lead to a drop in the federal budget deficit from 12.4% of GDP in 2021 to less than 4% of GDP in 2022. That would be the largest decline since the end of World War II. 
No matter where you fall on matters of the rapidly growing US national debt, a decrease in stimulus spending will likely slow the economy, at least in the short term. 
Add to that a surge in 30-year mortgage rates, an 8% increase in the dollar against key currencies this year that makes exports more expensive and dropping consumer confidence and you’ve got a fairly heightened “risk that the US economy falls into recession in the near term,” said Kelly. 

Boris Johnson and the falling pound

British Prime Minister Boris Johnson isn’t having a good week.
On Tuesday, the Conservative Party leader was dealt a huge blow when two of his top ministers announced their resignations, saying they could no longer work for a government mired in scandal
Chancellor of the Exchequer Rishi Sunak and UK Health Secretary Sajid Javid turned in their letters of resignation via Twitter within minutes of each other on Tuesday evening. Johnson has weathered multiple storms during his time as prime minister, but this may be one crisis too many.
Speculation is now swirling about a renewed bid by his own lawmakers to unseat him, possibly as earlier as next week.
“When your chancellor and health secretary both resign — it’s only a matter of time before a prime minister is out,” Jordan Rochester, a strategist at Nomura International, wrote in a note Tuesday.
The pound fell about 1.5% against the US dollar on Tuesday and remained mired near its lowest level since March 2020 on Wednesday. The cabinet changes likely won’t impact the pound in the short term, Rochester said, but the political instability caused by Johnson may do so. 
The world’s fifth biggest economy ground to a halt in February and started shrinking in March. Retail sales fell in May for the second consecutive month. The Bank of England has already raised interest rates five times and is promising more to tackle soaring inflation that could peak above 11% later this year, piling on the pain for millions struggling with a cost-of-living crisis.
Many of Johnson’s critics, including some in his own party, believe he doesn’t have the answers.
In his letter of resignation, finance minister Sunak cited insurmountable differences with Johnson on the economy.
“In preparation for our proposed joint speech on the economy next week, it has become clear to me that our approaches are fundamentally too different,” Sunak wrote. “I am sad to be leaving government but I have reluctantly come to the conclusion that we cannot continue like this.”
It would only be possible to deliver a low-tax, high-growth economy and strong public services if Johnson was prepared to “take difficult decisions,” he went on. “Our people know that if something is too good to be true then it’s not true.”

A hard landing and softening inflation

Analysts and investors are gearing up for a potential recession, and from Wall Street to Washington DC fears of an economic downturn are deepening.
Inflation remains at 40-year highs and the Federal Reserve shows no sign of slowing down its rate hikes to combat rising prices, while consumer confidence is at record lows. Even Fed Reserve Chair Jerome Powell has admitted that a soft landing will be exceedingly difficult to achieve. 
But there may be a small beacon of hope. It appears that fear of an economic downturn has been enough to ease fears of inflation.
Jeffrey Buchbinde and Jeffrey Roach of LPL Financial see some signs of a post-peak inflation world: 
  • The inflation rate implied by TIPS, a type of Treasury security issued by the US government, over the next five years has fallen from 3.1% to 2.6% in the last month, down from a peak of  3.7% earlier this year.
  • New supply chain data from the New York Fed indicates that supply bottlenecks are easing.
  • In June, the University of Michigan survey of consumers’ long-term inflation expectations fell from 3.3% to 3.1%.
  • Oil prices are down over 10% since June 8, which will hopefully translate into lower prices at the pump soon.

Up next

US ISM non-manufacturing index; US Fed minutes from June meeting.

Adblock test (Why?)

728x90x4

Source link

300x250x1
Continue Reading

Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

Published

 on


US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

Adblock test (Why?)

300x250x1

728x90x4

Source link

Continue Reading

Economy

Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

Published

 on


Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

300x250x1

The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Economy

Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

Published

 on


Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

300x250x1

“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Trending