Mr. Biden’s bottom-up $1.9 trillion aid package is a sharp reversal from the tax cut bill that was President Donald J. Trump’s first big legislative victory.
WASHINGTON — To jump-start the ailing economy, President Biden is turning to the lowest-paid workers in America, and to the people who are currently unable to work at all.
Mr. Biden’s $1.9 trillion economic relief package, which could be headed for the president’s signature in a matter of days, would overwhelmingly help low earners and the middle class, with little direct aid for the high earners who have largely kept their jobs and padded their savings over the past year.
For the president, the plan is more than just a stimulus proposal. It is a declaration of his economic policy — one that captures the principle Democrats and liberal economists have espoused over the past decade: that the best way to stoke faster economic growth is from the bottom up.
Mr. Biden’s decision to take that approach in his first major economic legislation is in stark contrast to President Donald J. Trump, whose initial effort in Congress was a tax-cut package in 2017 that largely benefited corporations and wealthier Americans.
The “American Rescue Plan” advanced by Mr. Biden includes more generous direct benefits for low-income Americans than the rounds of stimulus passed last year under Mr. Trump, even though it will arrive at a time when economic and coronavirus vaccine statistics suggest the broad economy is poised to take flight. It is more focused on people than on businesses and is expected to help women and minorities in particular, because they have taken an outsize hit in the pandemic recession.
Researchers predict it could become one of the most effective laws to fight poverty in a generation. Columbia University’s Center on Poverty and Social Policy estimates that the plan’s provisions, including a generous expansion of tax credits for low-income Americans with children, would reduce the poverty rate by more than a quarter for adults and cut the child poverty rate in half.
As with Mr. Trump’s stimulus bills, the new legislation contains provisions intended to attack the virus itself, including money for Covid testing and vaccine distribution.
But it also includes elements of longstanding Democratic priorities that will apply widely to lower-income Americans whether they are hurting financially from the pandemic or not. In addition to the tax credits, the bill increases subsidies for child care, broadens eligibility under the Affordable Care Act, and expands food stamps, rental assistance and unemployment benefits, among other provisions. Mr. Biden also tried to include a $15 minimum wage in the bill, but it did not survive Senate parliamentary rules.
Mr. Biden’s economic team is betting that a mix of $1,400 checks to individuals, more generous jobless aid and other safety-net benefits in the plan will help power a rapid increase in economic growth by aiming money at people who need help right now to pay their bills, buy groceries and stave off eviction or foreclosure — as opposed to higher earners who would be more likely to save the money.
Many economists predict that the increase in consumer spending would spur more hiring and business production, helping to lift the economy to its fastest annual growth rate since the mid-1980s.
Mr. Biden’s plan has angered congressional Republicans, who have pushed the president to focus his efforts on supporting businesses crippled by the pandemic and lifting any remaining barriers to the full reopening of economic activity as soon as possible. It has also drawn warnings from Wall Street traders and high-profile liberal economists, like the former Treasury secretary Lawrence Summers, who fear that pouring so much fuel on the economy will stoke dangerously high inflation.
But much of what conservatives and fiscal hawks call wasteful, untargeted or counterproductive spending in Mr. Biden’s bill are, in the eyes of Mr. Biden and his allies, the key ingredients for a roaring recovery once widespread vaccine distribution restores a sense of normalcy across the nation.
“Focusing on marginalized workers,” said Janelle Jones, the chief economist at the Labor Department, “is really the way to make sure we are lifting all boats.”
Like Mr. Biden’s, Mr. Trump’s first major piece of legislation was scored by budget analysts as adding nearly $2 trillion to the federal debt. Like Mr. Trump, Mr. Biden has employed a parliamentary process that allows his bill to pass without a single vote from the opposing party. Both presidents cast their respective plans as crucial aid for economies mired in growth that was unacceptably slow.
But unlike Mr. Biden, Mr. Trump pursued a top-down approach to reinvigorating economic and wage growth. He cut taxes for corporations and other businesses, alongside cuts in individual tax rates up and down the income spectrum. His advisers predicted that the moves would significantly accelerate business investment and generate a sustained economic boom that would in turn drive up incomes for low earners and the middle class, even though the direct benefits of the bill were disproportionately concentrated among the rich.
A sustained investment increase did not materialize as predicted, but economists generally agree that the cuts helped to temporarily bolster economic and wage growth in the year after they passed.
High earners and large companies show little sign of needing government help today. On the whole, the pandemic recession and recovery have made them richer. Workers earning higher wages and those able to work remotely are far less likely to have been thrown off the job, and they have stockpiled savings in the recovery. Companies like Amazon have gained market share as consumer habits have shifted.
But at the bottom end of the income spectrum — and in particular, among Black and Latino families — millions of Americans are still feeling the deep pain of the recession. The economy remains nearly 10 million jobs short of its prepandemic peak, with women of all races and men of color struggling the most to regain employment. The unemployment rate for Black men remains above 10 percent.
Data from the Census Household Pulse survey, analyzed by Lena Simet, a senior researcher on poverty and inequality at Human Rights Watch, shows that the lingering economic distress of the crisis is concentrated among low earners and those who remain out of work. Nearly half of households earning below $35,000 a year reported falling behind on housing payments. One quarter reported not having enough food.
Mr. Biden’s plan would shower those households with government assistance. Elizabeth Pancotti, the policy director at Employ America, a group in Washington that backs the Biden plan, has calculated the benefits for several different hypothetical hard-hit Americans under the bill.
For a working single mother of a 3-year-old who earns the federal minimum wage — just under $16,000 a year — the bill would provide as much as $4,775 in direct benefits, Ms. Pancotti estimates. For a family of four with one working parent and one who remains unemployed because of child care constraints, the benefits could total $12,460.
The Tax Policy Center in Washington estimates that the direct payments and expanded tax credits in the bill would, by themselves, increase after-tax income this year by more than 20 percent for an average household in the lowest quintile of income earners in the United States. It previously had forecast that Mr. Trump’s tax cuts would raise that same group’s income by less than 1 percent in the first year.
“It is as far away as you can get from regressive, supply-side economics,” said Senator Michael Bennet, Democrat of Colorado, a longtime champion of an expanded child tax credit to fight poverty. “This is progressive economics that puts money in the hands of working people who will spend that money.”
Previous economic aid packages, including those signed by Mr. Trump last March, helped unemployed workers and low earners weather the crisis thus far and even, in many cases, save some money. Research from the JPMorgan Chase Institute shows that low earners spent those savings down faster in the summer than higher earners, which suggests that they could use more help in the recovery and would most likely put that money to work in the economy.
“I don’t know that we really need to stimulate demand among high-earning families, or families that haven’t suffered financially,” said Fiona Greig, a president of the institute.
The Biden plan, particularly the direct payments, will provide some help to Americans who have not struggled financially over the past year, a fact the White House says is inevitable. Republicans, business groups and many economists have criticized the direct payments on those grounds, even after Democrats moved this week to restrict checks to individuals earning less than $80,000 a year and households earning less than $160,000.
Republicans have also warned that the plan could discourage Americans from working, both by offering tax credits not tied to employment and by providing a $300-per-week supplement to unemployment benefits that runs through the start of September, which critics say could effectively pay people more to stay at home than they would get on the job.
Research from economists at the University of Chicago and the JPMorgan Chase Institute found little evidence that a temporary round of $600 supplemental benefits that Mr. Trump signed into law last year discouraged the unemployed from taking jobs.
There is a risk that the disincentive could be larger this year, if the economy opens rapidly and jobs become widely available, said Peter Ganong, a University of Chicago economist who was one of the paper’s authors. But there is also a risk, he said, that the economy will not reopen as quickly as hoped — if, for example, new strains of the virus prove resistant to vaccines. In that case, the supplemental benefits could help people stay in their homes, put food on the table and keep the consumer spending engine of the economy running.
Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world
Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.
The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.
But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.
In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.
The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.
The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.
OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.
Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.
That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.
The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.
The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.
Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.
($1 = 1.2326 Canadian dollars)
(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)
Canada Economic Indicators
The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.
Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1
Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2
Employment Change and Unemployment
Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3
Consumer Price Index
Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4
International Merchandise Trade
This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5
Teranet – National Bank House Price Index
This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6
RBC Manufacturing Purchasing Managers’ Index – PMI
Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7
The Conference Board’s Consumer Confidence Index
The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8
Ivey Purchasing Managers Index – PMI
An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9
Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10
This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11
Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12
The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13
The Bottom Line
The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.
Canada adds jobs for fourth straight month in May
Canada added 101,600 jobs in May, the fourth consecutive month of gains, led by hiring in the education and health services sector as well as in professional and business services, a report from payroll services provider ADP showed on Thursday.
The April data was revised to show 101,300 jobs were gained, rather than an increase of 351,300. The report, which is derived from ADP’s payrolls data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.
(Reporting by Fergal Smith; Editing by Alex Richardson)