As President Donald Trump and Democratic presidential nominee Joe Biden trade boasts and barbs over the former and current state of the economy, analysts have zeroed in on Trump’s claims of record-high job creation — which comes saddled with significant caveats.
“The job market is still a shadow of what it was prior to the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics.
The White House bragged about the jobless rate falling from a peak of 14.7 percent in April to 8.4 percent in August, but that decrease obscures the sobering deficit that still remains of more than 11 million jobs, compared to the pre-pandemic labor market.
The picture is even grimmer for some worker subgroups: By February, Black unemployment had already begun to creep up from the 5.5 percent low it hit in the fall of 2019. Black unemployment skyrocketed to 16.7 percent in April and then rose again in May, a month in which overall unemployment dropped. Black unemployment was 13 percent in August and Hispanic unemployment was 10.5 percent.
The reality when it comes to the recovery in economic activity also falls short of White House claims. Third quarter GDP is scheduled to be released Wednesday, and the Atlanta Fed’s GDPNow tracking tool indicates an unprecedented jump of 32 percent.
Bragging about the pre-coronavirus economy does little to reassure a worried electorate, said Mark Hamrick, senior economic analyst at Bankrate.com. “The administration will tout the strength of the recovery in recent months, but that’s also within the context of steep declines in March and April, and the same is true of the annualized contraction in GDP. When people talk about the fact that there’s likely a record rebound, the two cannot be viewed in the absence of the other,” he said.
“What’s most important is where the economy stands and where it’s headed… GDP will likely be contracting for the full year,” Hamrick said.
“The real risk, and the real issue, is Q4,” Zandi said. “Given the lack of momentum… you can cherry-pick numbers, but the reality is even after that strong Q3 number, we’re only going to get about half the GDP back.”
Biden has said the middle class got a raw deal even before the pandemic, noting Trump’s policies exacerbated economic inequality. The Federal Reserve found that, in 2018, nearly four in 10 Americans would be unable to shoulder a $400 emergency expense without having to borrow money, an increase of a mere two percentage points from 2017, the first year of Trump’s presidency and the year the Tax Cuts and Jobs Act was implemented.
Likewise, the stock market increases the president touts have not been shared equally: According to the Pew Research Center, nearly half of Americans have no exposure to the stock market at all, and a mere 14 percent of households have any direct investments in individual stocks.
“We know there were disproportionate gains in income among the wealthiest Americans. That was because of the strength of the stock market and the way the tax cut was designed,” Hamrick said. “Those are inconvenient facts for the president.”
For a president elected on a platform of economic populism, the vast majority of Americans have gained remarkably little. In the first quarter of 2020, just before Covid-19 struck, the richest 10 percent of households held roughly 69 percent of the nation’s collective wealth, with just over 31 percent held by the richest 1 percent, while the poorest half held a mere 1.4 percent — figures nearly unchanged from the first quarter of Trump’s presidency.
Zandi said the tax cuts introduced in 2017 were a boon to rich Americans and corporations, and pointed out that financing those tax cuts also left the nation on shakier economic footing for the long term. The Urban-Brookings Tax Policy Center said the tax cuts could add from $1 trillion to $2 trillion to the federal debt — and most American households will have little to show for it, Zandi said.
“The prime beneficiaries were high-income, high-net worth households. They were the winners,” he said.
Hong Kong leader to visit Beijing to discuss plans to revive economy – The Globe and Mail
Hong Kong leader Carrie Lam will travel to Beijing next week for a three-day visit to discuss plans to revive the global financial hub’s economy which has been battered by the COVID-19 pandemic and anti-government protests.
Lam, speaking at a weekly news briefing on Tuesday, said she would leave on Nov. 3 for the southern Chinese city of Shenzhen, where she will take a coronavirus test before travelling to Beijing.
“My trip to Beijing this time is solely on the economic side that is in light of the economic situation, which of course is very serious in Hong Kong,” Lam said on Tuesday.
“We need more support measures from the mainland of China, especially in light of the overall direction that Hong Kong should move to better integrate with the mainland of China especially in the Greater Bay Area.”
The Beijing-backed leader postponed her annual policy address earlier this month in order to travel to the mainland for talks on how the central government can support the former British colony’s economic recovery.
She said she still plans to deliver her policy address by the end of November.
Lam has repeatedly touted the importance of the Greater Bay area – a region that includes Hong Kong, Macau and nine cities in China’s Guangdong province – as a key pillar to provide economic benefits to the Chinese-ruled city.
Hong Kong is reeling from the double blow of anti-government protests that plunged the city into its biggest crisis in decades last year and the impact of coronavirus.
Beijing imposed a national security law on Hong Kong in June that punishes what authorities broadly define as secession, sedition and collusion with foreign forces with up to life in jail, following a year of sometimes violent demonstrations.
Western governments and international human rights groups have expressed concern the law will crush freedoms in Hong Kong.
Authorities in Beijing and Hong Kong have said the law is necessary to bring stability to the city.
The Real Winner of the Work-From-Home Economy – BNN
(Bloomberg Opinion) — South Korea is in something of a sweet spot for the Covid-19 era. Neighboring China, its biggest trading partner, is driving the global rebound and the world increasingly wants the technology that Korea sells.
Gross domestic product figures are encouraging. The economy expanded 1.9% in the third quarter from the prior three months, the government reported Tuesday, exceeding forecasts and the first positive reading this year. Growth retreated 1.3% on an annual basis, a milder decline than projected. The numbers are the second upbeat installment from North Asia in little more than a week. Recent figures indicate China is likely to be the only commercial power to show any growth this year. South Korea may come close, as could Taiwan.
South Korea’s bounce is built on what leaves the country. Exports account for about 40% of the economy. Memory chips and electronics have benefited from a shift to work-and study-from-home during the pandemic. Other things shipped by Korea, like chemicals and metal products, haven’t done so well. While this mix means Korea is vulnerable to an eventual rebellion against the kitchen-table conference room, that prospect doesn’t appear imminent. Even hubs for global finance with strong executive government, such as Singapore, are slow-walking the return to downtown. WFH remains the default for much of the world.
Seoul’s willingness to cast off decades of budget prudence, too. No matter how many container ships or cargo planes dot the horizon, there’s little substitute for cranking up the printing press in fallow times. President Moon Jae-in has rolled out four stimulus packages as part of a fiscal onslaught equivalent to about 14% of GDP. While the government is anxious to repair the books once the recovery is assured, it would be premature to ease up now. Moon has space to do even more. South Korea’s debt levels, relative to the economy, are among the lowest in the Organization for Economic Cooperation and Development.
Muscular fiscal policy means more borrowing. Moon has been aided by a central bank that’s prepared to buy bonds on a fairly regular basis in the name of market stability. While the Bank of Korea shies from the term “quantitative easing,” it is keeping a lid on the price the government pays for money.
Perhaps the real achievement is that the country kept coronavirus infections in check and returned to growth without a comprehensive lockdown or equally forced rapid reopening. China is aided by an authoritarian political system that can turn the key in either direction without dissent. South Korea is a democracy. Social distancing, contact tracing and dialing up (or down) other curbs on a localized basis worked pretty well.
Lots could still go wrong. The global economy might take a turn for the worse, given the recent jump in U.S. and European infections. And at home in Korea, the natural boost an economy gets after exiting recession will eventually wear off. The country was posting fairly sluggish growth numbers before the pandemic. Unemployment is rising. And while it’s a relief to see growth return, the second-quarter contraction was the worst in decades.
For now, though, let’s acknowledge a job that’s been relatively well done.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
©2020 Bloomberg L.P.
ADRIAN WHITE: Underground economy is thriving – The Guardian
There is no doubt that COVID-19 has changed the way businesses function in Cape Breton. The pandemic has forced many entrepreneurs to reshape operating strategies for financial survival.
Think of the new safety protocols for restaurants to protect staff and customers from virus transmission. Think sporting events playing out before near-empty stadiums and instead focused heavily on revenues generated from media broadcast of the event.
There are just too many changes to business practices to list here in this column including the growth of digitization in our economy but I wanted to single out a few examples to illustrate some telling impacts.
One major impact comes from folks not feeling safe to travel outside the province or eat out in restaurants due to the pandemic. Instead, they are using some of those cash savings to fund home improvement projects right here in the Cape Breton economy. That is a good thing for our community and our workers and it supports the “Shop Local-Buy Local” mantra being promoted by the local business community.
Demand in the home improvement sector has soared and is so strong that it has led to a shortage of building materials, a rapid rise in material costs and a shortage of skilled labour to take on those home improvement projects.
Many new contractors have entered the home improvement business in 2020 and many anxious homeowners are in hot pursuit of their services. Sometimes these contractors show up when expected to do a job and sometimes not. This has been a long-standing problem with small contractors in Cape Breton.
Some contractors present an official written quote including HST for the project leaving a paper trail to follow while other contractors are quite prepared to take cash from the customer thereby avoiding HST. Cash leaves little trail for CRA to follow when it comes to reporting taxable income.
This practice leads me to shed some light on the underground economy and its impact on our well-being as a province. Statistics Canada defines the underground economy as “consisting of market-based activities, whether legal or illegal, that escape measurement because of their hidden, illegal or informal nature.”
I use the construction industry as an easy-to-understand example but you can imagine other opportunities for tax avoidance including buying illegal cigarettes, street sold cannabis, cash tips, paying cash for services, Airbnb cash rentals, or offshore bank accounts not being reported to CRA.
In Nova Scotia, according to Statistics Canada, the underground economy was estimated to be $1.28 billion in 2018. That is near 3 per cent of provincial GDP. This is revenue that escapes government taxation. Nova Scotia’s underground economy as a share of GDP is higher than the national average which is troubling. Taxes on $1.28 billion would go a long way to offset the forecasted 2020 Nova Scotia budget deficit of $853 million due to the pandemic.
Some of the underground economy is driven by the fact Nova Scotia has the second-highest personal income tax rates in the country. It remains one of three remaining provinces in the country that still practices “bracket creep” on your personal income tax deduction by not adjusting it to CPI on your annual income tax return.
The higher the taxes the more incentive it provides for individuals and companies to embrace tax avoidance. Alberta has one of the lowest personal income tax rates in Canada and no provincial sales tax. It abandoned “bracket creep” on its residents decades ago. It also has one of the lowest underground economy as a share of GDP rates in the country running at 1.8 percent of provincial GDP.
British Columbia has the highest ratio at 3.7 percent of GDP. In Canada, the underground economy was valued at a whopping $61 billion in 2018 amounting to 2.7 per cent of national GDP.
I can only imagine with the increased demand for home improvement projects in Canada due to the pandemic that underground economic activity will likely increase 50 per cent rising close to $90 billion for 2020.
In Nova Scotia, residential construction accounts for over 25 percent of the estimated underground economy GDP. The next six largest contributors to the underground economy amount to about 50 per cent of Nova Scotia’s underground economy. They are retail trade, accommodation/food services, finance/insurance/real estate, manufacturing, professional/technical services and health care/social assistance.
If we want to grow the Nova Scotia economy and thereby increase tax revenues to pay for the services we all expect, we are going to have to rethink the tax burden on individuals and businesses to bring balance and fairness to the tax environment. It is one of the reasons we struggle to recruit doctors to Cape Breton. Above-average taxes in Nova Scotia hinder economic expansion. High taxes will continue to drive the underground economy and tax avoidance until we address them.
Adrian White is CEO of NNF Inc, Business Consultants. He resides Sydney & Baddeck and can be contacted at email@example.com.
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