The U.S. economy grew at an unexpectedly brisk 3.3 per cent annual pace from October through December as Americans showed a continued willingness to spend freely despite high interest rates and price levels that have frustrated many households.
Thursday’s report from the U.S. Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated from its sizzling 4.9 per cent growth rate the previous quarter. But the latest figures still reflected the surprising durability of the world’s largest economy, marking the sixth straight quarter in which GDP has grown at an annual pace of 2 per cent or more.
Consumers, who account for about 70 per cent of the total U.S. economy, drove the fourth-quarter growth. Their spending expanded at a 2.8 per cent annual rate, for items ranging from clothing, furniture, recreational vehicles and other goods to services like hotels and restaurant meals.
The GDP report also showed that despite the robust pace of growth in the October to December quarter, inflation continued to ease in the United States. Consumer prices rose at a 1.7 per cent annual rate, down from 2.6 per cent in the third quarter. And excluding volatile food and energy prices, so-called core inflation came in at a 2 per cent annual rate.
Inflation has remained high for consumers in the United States, though it has dropped in recent months. (Lawrence Bryant/Reuters)
The state of the economy is sure to weigh on people’s minds ahead of the November U.S. presidential elections. After an extended period of gloom, Americans are starting to feel somewhat better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect voters’ decisions. A measure of consumer sentiment by the University of Michigan, for example, has jumped in the past two months by the most since 1991.
U.S. inflation falling, economy expanding
There is growing optimism that the Federal Reserve is on track to deliver a rare “soft landing” — raising borrowing rates enough to cool growth, hiring and inflation yet not so much as to send the economy into a tailspin.
Inflation touched a four-decade high in 2022 but has since edged steadily lower without the painful layoffs that most economists had thought would be necessary to slow the acceleration of prices.
The economy has repeatedly defied predictions that the Fed’s aggressive interest rate hikes would trigger a recession. Far from collapsing last year, the U.S. economy accelerated — 2.5 per cent, up from 1.9 per cent in 2022.
“We continue to forecast an ongoing expansion in economic activity over coming quarters,″ said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Eventually, she cautioned, higher borrowing rates may dampen consumer spending and gross domestic product. But she added that “there could be some upside to economic growth as the Fed starts to cut rates this year and financial and credit conditions ease.″
The economy’s outlook had looked far bleaker a year ago. As recently as April 2023, an economic model published by the Conference Board, a business group, had pegged the likelihood of a U.S. recession over the next 12 months at close to 99 per cent.
Prices still high, unemployment still low
Even as inflation in the United States has slowed significantly, overall prices remain nearly 17 per cent above where they were before the pandemic erupted three years ago.
The Fed began raising its benchmark rate in March 2022 in response to the resurgence in inflation that accompanied the economy’s recovery from the pandemic recession. By the time its hikes ended in July last year, the central bank had raised its influential rate from near zero to roughly 5.4 per cent, the highest level since 2001.
Inflation might be easing but don’t expect prices to fall
Canadians have been paying more for everything as prices surged during the pandemic. But as inflation eases, prices will remain high and some economists say that’s a good thing.
As the Fed’s rate hikes worked their way through the economy, year-over-year inflation slowed from 9.1 per cent in June 2022, the fastest rate in four decades, to 3.4 per cent as of last month. That marked a striking improvement but still leaves that inflation measure above the Fed’s 2 per cent target.
The progress so far has come at surprisingly little economic cost. Employers have added a healthy 225,000 jobs a month over the past year. And unemployment has remained below 4 per cent for 23 straight months, the longest such streak since the 1960s.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
