By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. economy grew at a historic pace in the third quarter as the government injected more than $3 trillion worth of pandemic relief which fueled consumer spending, but the deep scars from the COVID-19 recession could take a year or more to heal.
The 33.1% annualized growth rate reported by the Commerce Department on Thursday, the last major economic scorecard before next Tuesday’s presidential election, did not ease the human tragedy inflicted by the coronavirus pandemic, with tens of millions of Americans still unemployed and more than 222,000 dead.
The economy remains 3.5% below its level at the end of 2019 and incomes plunged in the third quarter. Nevertheless, with five days remaining to Election Day President Donald Trump, trailing in most national opinion polls, cheered the report.
“Biggest and Best in the History of our Country, and not even close,” Trump wrote on Twitter. “So glad this great GDP number came out before November 3rd.”
Trump’s Democratic challenger Joe Biden highlighted the lack of full recovery and the rapidly petering growth spurt.
“We are in a deep hole and President Trump’s failure to act has meant that third-quarter growth wasn’t nearly enough to get us out of (it),” said Biden. “The recovery that is happening is helping those at the top, but leaving tens of millions of working families and small businesses behind.”
According to Christopher Way, an associate professor of government at Cornell University, the report “will have absolutely zero effect on the election and it is economic performance in the first half of an election year that matters.”
The rebound in gross domestic product followed a 31.4% rate of contraction in the second quarter, the deepest since the government started keeping records in 1947. On a year-on-year basis GDP jumped 7.4% last quarter after sinking 9.0% in the April-June period. The rebound reversed about two-thirds of the 10.1% drop in GDP in the first half. By comparison, the economy contracted 4% peak to trough during the 2007-09 Great Recession.
Economists polled by Reuters had forecast GDP expanding at a 31% rate in the July-September quarter. The economy plunged into recession in February.
The government’s rescue package provided a lifeline for many businesses and the unemployed, juicing up consumer spending, which on its own contributed 76.3% to the surge in GDP.
But government funding has been depleted with no deal in sight for another round of relief. New COVID-19 cases are spiraling across the country, forcing restrictions on businesses like restaurants and bars.
“We still don’t have the level of GDP surpassing the pre-COVID level until fourth-quarter 2021 and closing the output gap will take even more time,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.
Foreshadowing a slowdown in consumer spending, personal income tumbled at a $540.6 billion rate in the third quarter after surging at a $1.45 trillion pace in the prior period. The drop was attributed to a decline in government transfers related to the pandemic relief programs.
Though savings remain high, the pace at which Americans are stashing away money is moderating. That, together with persistent layoffs and slowing employment growth could restrain consumer spending in the coming months.
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 40,000 to a seasonally adjusted 751,000 in the week ending Oct. 24. Including a government funded program, 1.1 million people sought unemployment benefits last week.
Though claims have dropped from a record 6.867 million in March, they remain above their 665,000 peak seen during the 2007-09 Great Recession. About 22.7 million Americans were receiving unemployment benefits in early October, though many have exhausted their eligibility for state aid.
Just over half of the 22.2 million jobs lost during the pandemic have been recouped.
Consumer spending, which accounts for more than two-thirds of the U.S. economy, rebounded at a historic rate of 40.7% in the third quarter, driven by purchases of goods like motor vehicles, clothing and footwear. Americans also boosted spending on recreation, healthcare and dining out. But spending on services remained below its fourth quarter level.
Spending was boosted by billions of dollars in government transfers, including a $600 weekly unemployment subsidy and a one-off $1,200 check to households. Growth estimates for the fourth quarter are below a 5% rate.
“Without further stimulus, the winter may indeed be very painful,” said Jeff Madrick, senior fellow at The Century Foundation in New York.
The shift toward goods spending pulled in imports, resulting in a widening of the trade deficit. Some of the imports, however, ended up in warehouses. The accumulation of inventory offset the trade hit to GDP growth.
There was also a turnaround in business investment after the second-quarter drubbing, but the bounce could be temporary as demand for goods that do not complement life-style changes brought by COVID-19 remains weak. Boeing Co reported its fourth straight quarterly loss on Wednesday.
The pandemic has also crushed oil prices, weighing on spending on nonresidential structures like gas and oil well drilling. Business spending on nonresidential structures contracted for a fourth straight quarter.
Record low interest rates boosted housing. Government spending fell, pressured by cuts at state and local governments, whose finances have been squeezed by the coronavirus.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
Charting the Global Economy: Recession Recovery Is Wildly Uneven – BNN
The world’s economic recovery is wildly uneven — and that again was on display this week.
U.S. data on the eve of the Thanksgiving holiday offered signs of both strain and strength, while Germany’s resilience was again on display in European PMI numbers — even amid new lockdown measures that have knocked the economy back.
No matter where in the world you are, the economic consequences of the pandemic are falling disproportionately on the young. Though if you could chose where to weather the crisis, a new scorecard suggests New Zealand should be high on the list.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
U.S. business activity is powering ahead and housing market remains red hot. The annualized rate of new-home sales has averaged 1 million from August through October, the strongest demand since 2006, and a increase in builder backlogs suggest residential construction will remain robust through at least the end of the year.
Still, some of the ground looks shaky. Americans’ income declined more than forecast in October, the number of people applying for state unemployment benefits unexpectedly increased in consecutive weeks for the first time since July, and consumer sentiment dipped to a three-month low.
European economies are contracting again as the latest coronavirus restrictions take a massive toll on services. The Purchasing Managers Index for the euro area slipped back into contraction in November, as did the U.K. Germany, however, is coping with the latest restrictions relatively well.
U.K. Chancellor of the Exchequer Rishi Sunak sought to balance more jobs support with controversial spending cuts this week to get control of the government’s pandemic debts. According to Bloomberg Economics, the U.K. will struggle to avoid economic scarring, though the hit will probably be smaller than from previous recessions. That’s in part because of the scale of the policy response.
Australian Prime Minister Scott Morrison is trying to break a standoff with China that has stalled delivery of more than US$500 million worth of coal from the world’s biggest exporter as tensions between the two trading partners mount.
China’s economic recovery stabilized in November, underpinned by solid global demand for exports ahead of the Christmas period and the stock market’s gain to its highest since 2015.
Consumer prices in Latin America’s two largest economies diverged in early November, complicating Brazil’s plans to hold its benchmark interest rate at a record low while suddenly giving Mexico space to cut.
Bloomberg Economics doesn’t expect Nigeria’s recovery to gain momentum until next year, when the deep oil production cuts agreed in 2020 are eased and the emergence of a vaccine lifts global demand.
In 2019, the U.S.-China trade war blew a hole in global growth, in 2020, the pandemic caused a historic crash, but 2021 could be the year when U.S.-China ties stabilize and a vaccine draws a long-awaited line under the Covid crisis, according to Bloomberg Economics.
While the people at greatest risk of suffering severe cases of Covid-19 are of retirement age, the economic fallout has been greatest on the young. A look at unemployment rates across Group of Seven economies shows how severely the crisis has hurt 15-24 year olds.
Bloomberg crunched the numbers to determine the best places to be in the coronavirus era. New Zealand had the highest score. Japan, at No. 2, was the only G-7 country to make the top 10.
–With assistance from Dan Hanson (Economist), Tom Orlik (Economist), Björn van Roye (Economist), Catherine Bosley, Sophie Caronello, Rachel Chang, Eileen Gbagbo, Max de Haldevang, Mario Sergio Lima, Alex Morales, Jason Scott and Kevin Varley.
Province reports lower deficit, touts recovering economy in mid-year report – CBC.ca
The provincial government released its mid-year report today and projected a deficit almost $400 million lower than expected.
Earlier this year, the provincial government forecasted a $2.4 billion deficit but today’s report showed that to be sitting around $2 billion, an improvement of $381.5 million from this year’s budget.
Revenue projections also saw an increase, to the tune of $503.5 million, or 3.7 per cent from the provincial budget announcement.
“The increase from budget is due to higher federal transfers, higher government business enterprise net income and higher non-renewable resource revenue,” a statement from the Ministry of Finance said.
Tax revenues were projected to decrease by $41.2 million as a reduction in the small business tax rate was factored in. Other tax and own-source revenue forecasts were unchanged from the budget.
Expenses were forecasted to be $16.2 billion, an increase of $122 million, or 0.8 per cent. The increase covered money for the health, education, municipal and tourism sectors and was partly offset by lower-than-budgeted pension expenses and crop insurance claims expenses.
The mid-year forecast included the impacts of the government’s election commitments, totalling $91.7 million.
Finance Minister Donna Harpauer said $260 million was set aside as contingency, which she said is a substantial cushion that’s built in for the remaining six months of the year. She said data from the first six months of the year will help guide the province through the remainder of the year.
She noted that the contingencies are set aside to protect the healthcare system and said the province will do “whatever it takes” to ensure the system is supported through the COVID-19 pandemic.
“There is no way to say what the magic number will be … compensation salaries is going to be a big part of that, and that is something that we couldn’t pre-pay,” Harpauer said on Friday.
“At 160 million, that will deal with quite a bit of that pressure for the next few months.”
In reflecting on the numbers, Harpauer said she was pleased to see the provincial economic indicators were stronger than what was initially anticipated.
She said she’s concerned because the province is reliant on two items in particular: consumer confidence and trade. Consumer confidence is affected by COVID-19 numbers, she said, and because the province is trade-dependant, Saskatchewan is heavily affected by what happens in other jurisdictions in Canada and around the world.
“I will always have a nervousness for those two factors because they will affect this budget in a big way,” Harpauer said.
Drop in public and net debt
The ministry said public and net debt are both down compared to the budget’s forecasts.
Estimates showed Saskatchewan’s net debt-to-GDP ratio, as of March 31, 2021, would be at 19.6 per cent, one of the lowest in the country, and the ministry touted Saskatchewan’s credit rating as the second-highest in Canada.
“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said in the provncial release.
“Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget. Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels. As a result, our planned path to balance in 2024-25 is unchanged.”
Bank of Canada says vaccine could cause economy to rebound faster than expected – TheChronicleHerald.ca
By Julie Gordon and David Ljunggren
OTTAWA (Reuters) – Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful coronavirus vaccination effort, Bank of Canada Governor Tiff Macklem said on Thursday.
On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could if necessary cut already record low interest rates.
In late October, the bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early next year.
“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast and if that happens the economy will rebound more quickly,” Macklem said in response to questions from the House of Commons finance committee. He described the news about vaccines as promising.
In late October, the bank forecast the economy would not fully recover until some time in 2023, a forecast Macklem repeated in his opening remarks.
The path to recovery still faced risks, he said. Earlier this year the bank slashed its key interest rate to 0.25%.
“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points, it could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful.
The U.S. Federal Reserve has a target for its key rate of 0 to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%.
Some other central banks also have benchmark rate that are less than 0.25%, such as the European Central Bank and the Bank of England.
“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” Macklem said.
(With additional reporting by Fergal Smith in Toronto; Editing by Rosalba O’Brien, Tom Brown and Aurora Ellis)
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