The U.S. economy contracted 3.5 per cent in 2020, the Commerce Department reported Thursday, the worst economic freeze since the end of the Second World War.
The report estimated that the nation’s gross domestic product — its total output of goods and services — slowed sharply in the October-December quarter after a record 33.4 per cent surge in the July-September quarter. That gain had followed a record-shattering annual plunge of 33.4 per cent in the April-June quarter.
The economy grew at a four per cent annual rate in the final three months of 2020.
The pandemic’s blow to the economy early last spring ended the longest U.S. economic expansion on record — nearly 11 years. The damage from the coronavirus caused GDP to contract at a 5 per cent annual rate in last year’s January-March quarter. Since then, thousands of businesses have closed, nearly 10 million people remain out of work and more than 425,000 Americans have died from the virus.
The estimated drop in GDP for 2020 was the first such decline since a 2.5 per cent fall in 2009, during the recession that followed the 2008 financial crisis.
That was the deepest annual setback since the economy shrank 11.6 per cent in 1946, when it was demobilizing after the Second World War. The most catastrophic annual contraction in records dating to 1930 was a 12.9 per cent fall in 1932, during the Great Depression.
Vaccines offer promises for better 2021
The government’s report Thursday was its first of three estimates of growth last quarter. The figure will be revised twice in the coming weeks.
The outlook for the 2021 economy remains hazy. Economists warn that a sustained recovery won’t likely take hold until vaccines are distributed and administered nationwide and government-enacted rescue aid spreads through the economy — a process likely to take months.
On Wednesday, the Federal Reserve took note of the economic threats. It kept its benchmark interest rate at a record low near zero and stressed that it would keep pursuing its low-rate policies until a recovery is well underway.
The Fed acknowledged that the economy has faltered in recent months, with hiring weakening, especially in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involved in face-to-face public contact.
Hiring in the United States has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from traveling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.
Last month, the government enacted a $900 billion US rescue aid package, and President Joe Biden is pushing for lawmakers to follow up by approving his $1.9 trillion plan for further economic help. Biden’s proposal has met resistance, though, from many Republicans who contend that the cost is too high and some of its benefits misplaced.
Many economists warn that without further support, the economy risks succumbing to another recession. They note that much of the aid for individuals from the $900 billion package is set to expire in mid-March.
“The economy is still struggling,” said Mark Zandi, chief economist at Moody’s Analytics. “How strong the economy is later this year will depend on how the virus evolves and the effectiveness of the vaccines and mitigation efforts.”
Permanent service job losses predicted
Zandi predicted that the economy will expand at a 4.4 per cent annual rate in the current quarter and achieve annual growth rates later this year above 5 per cent. But he cautioned that his forecast is based on the enactment of further federal economic relief, and he expects Biden initially to win congressional approval for only about half his $1.9 trillion proposal.
About five million jobs, Zandi estimates, will never return, forcing the unemployed in such industries as restaurants and bars to find work in other sectors.
“We have lost so many low-paying service jobs at restaurants, hotels and in transportation,” said Sung Won Sohn, an economics and business professor at Loyola Marymount University in Los Angeles.
The number of Americans applying for unemployment benefits fell but remained at a historically high 847,000 last week, it was announced Thursday, a sign that layoffs keep coming as the coronavirus pandemic continues to rage.
Last week’s claims dropped by 67,000, from 914,000 the week before, the Labor Department said. Before the virus hit the United States last March, weekly applications for jobless aid had never topped 700,000.
Overall, nearly 4.8 million Americans are continuing to receive traditional state unemployment benefits.
The U.S. is now recording just under 150,000 new coronavirus cases a day. That is down from nearly 250,000 a day earlier this month, but still more than twice the levels seen in March, until a resurgence in cases in late October.
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.
