Gross domestic product grew 1.6 percent in the second quarter, the latest gauge of a rebound that could be challenged by the Delta variant of the coronavirus.
Vaccinations and federal aid helped lift the U.S. economy out of its pandemic-induced hole in the spring. The next test will be whether that momentum can continue as coronavirus cases rise, masks return and government help wanes.
Gross domestic product, the broadest measure of economic output, grew 1.6 percent in the second quarter of the year, the Commerce Department said Thursday, up from 1.5 percent in the first three months of the year. On an annualized basis, second-quarter growth was 6.5 percent.
Fueled by strong consumer spending and robust business investment, the growth brought output back to its prepandemic level, adjusted for inflation. That is a remarkable achievement, exactly a year after the economy’s worst quarterly contraction on record. After the last recession ended in 2009, the G.D.P. took two years to rebound fully.
G.D.P. rebounded much faster than it did in the Great Recession
But the recovery is far from complete. Output is significantly below where it would be had growth continued on its prepandemic path, and other economic measures remain deeply depressed, particularly for certain groups. The United States has nearly seven million fewer jobs than before the pandemic. The unemployment rate for Black workers in June was 9.2 percent.
“The good news is, this is all occurring much more rapidly than after the financial crisis,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “The bad news is, the pain was much worse.”
For Sarah Ladley, the economy’s spring reawakening was a glimmer of hope after a brutal year for her business.
Ms. Ladley, 33, started selling banana-based frozen treats out of her Denver food truck nearly a decade ago, just after she graduated from college. The pandemic nearly wiped her out: She made it through last year with the help of a loan through the Paycheck Protection Program, but the business lost money. With pandemic restrictions still in place early this year, she began looking for another job to pay the bills.
Instead, the phone began ringing with people looking to hold events.
“All of a sudden in May, it was like the floodgates opened,” she said.
Now Ms. Ladley has a different set of problems. Business has rebounded, though not all the way, and she is having trouble fulfilling demand. She had to change the cups she uses after a vendor ran out, stores will sometimes be out of the fruit she needs and she has struggled to hire workers amid competition from businesses that can offer higher pay and year-round employment. She says she has had to turn away business to avoid burning out her limited staff.
“Things definitely aren’t normal, but even if they were normal, I wouldn’t be able to handle it,” she said.
Indeed, the economy’s second-quarter growth might have been stronger had it not been for supply-chain disruptions and labor challenges that made it difficult for many businesses to keep their shelves stocked and their stores staffed. Inventories fell and imports rose as companies turned to overseas suppliers and their own warehouses to meet demand where domestic producers could not. And despite a red-hot housing market, residential construction fell 2.5 percent in the second quarter as builders struggled to get materials and workers.
Those issues, combined with a rush of consumer demand, contributed to faster inflation in the second quarter. Consumer prices rose 1.6 percent from the first quarter of the year to the second. Without adjusting for inflation, economic output rose 3.1 percent.
Now a new threat is emerging in the highly contagious Delta variant of the coronavirus, which has led to a surge in cases in much of the country. The Centers for Disease Control and Prevention recommended this week that even vaccinated people should wear masks indoors in some parts of the country, and some mayors and governors have reimposed mask mandates.
Few economists expect a return to widespread business shutdowns or stay-at-home orders. But if the resurgent virus leads to renewed caution among consumers — a reluctance to dine at restaurants, hesitation about booking a late-summer getaway — that could weaken the recovery at a crucial moment.
“The reason that is concerning is that this burst of activity around reopening has been driving the economy the past couple months,” said Michelle Meyer, head of U.S. economics at Bank of America. “Even a modest change in behavior could show up more meaningfully this time around.”
Brandon Lindley is watching the Delta variant news with mounting concern. He and his husband, Raphael Polito, own retail stores in California and Arizona selling designer flip-flops and other tourism-oriented products. After a disastrous 2020, business has picked up in California this year, but they are grappling with supply-chain and labor issues, and their store in Scottsdale, Ariz., is still struggling. Business has softened since July 4, which Mr. Lindley suspects could reflect concern over the new variant.
“Everyone’s a little on edge,” he said. “They don’t know what’s coming down the pipeline.”
There is little evidence so far that either the Delta variant or inflation are making a dent in consumer demand overall. Consumer spending rose 2.8 percent in the second quarter, and more recent data from private-sector sources has yet to show a significant slowdown.
Spending on services was particularly robust in the second quarter as widespread vaccinations and falling coronavirus cases led Americans to return to restaurants, nail salons and other in-person activities. But goods spending remained strong as well, reflecting the strong financial position of many households after successive rounds of government aid, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.
Personal income after taxes fell from the first quarter, when stimulus payments provided a temporary lift, but is still 6.4 percent above its prepandemic level after adjusting for inflation. And Americans are collectively sitting on trillions more in savings than they had before the pandemic.
“The story of the last two decades was that every time you got a price increase somewhere, it caused immediate demand destruction because household incomes and balance sheets were so constrained,” Ms. Markowska said. “Today that’s not the case. Household finances are in the best shape they’ve been in decades.”
Still, the recovery has been highly unequal. Data from Affinity Solutions, which tracks the credit and debit card transactions of 90 million U.S. consumers, shows that recent increases in spending have been driven by high-income households. Employment among people with a college degree — many of whom could work from home — fell less in the pandemic and has already returned to its previous level, while employment among those with a high school diploma or less remains millions of jobs below that benchmark.
“The people who were working and did not have an interruption in their pay were able to save more money and now have this pent-up demand,” said Kristen Broady, a Dillard University economist and a fellow at the Brookings Institution. For low-income households who fell behind on rent or bills during the pandemic, she said, “their situation is even worse than it was before.”
And this time, workers and businesses may have to face the pandemic without much help from the federal government. Roughly half the states have cut off enhanced unemployment benefits in recent weeks, and the programs are set to end nationally in September. The Paycheck Protection Program, which helped thousands of small businesses weather the crisis, is winding down. A federal eviction moratorium is scheduled to end this week. And there is no sign that Congress intends to pass a fourth round of direct checks to households.
Nela Richardson, chief economist for ADP, the payroll processing firm, said the second quarter might stand as a high-water mark for the recovery, when federal aid was still flowing and when vaccinations and the lifting of restrictions gave people an opportunity to spend.
“All the winds were going in one direction, which was to push the economy forward,” she said. “The more interesting question is: Where do we go from here?”
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.
