U.S. retail sales increased by the most on record in May after two straight months of sharp declines as businesses reopened, offering more evidence that the recession triggered by the COVID-19 pandemic was over or drawing to an end.
The report from the Commerce Department on Tuesday followed news early this month that the economy created 2.5 million jobs in May. Layoffs are also ebbing and manufacturing activity is improving, though production remains at very low levels.
The surge in retail sales last month recouped 63 per cent of March and April’s decreases. But the journey to recovery could be long and difficult as some parts of the country are experiencing a resurgence of COVID-19 infections. In addition, enhanced federal government unemployment checks will run out in July.
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Federal Reserve Chair Jerome Powell told U.S. lawmakers on Tuesday that “until the public is confident that the disease is contained, a full recovery is unlikely.”
Retail sales jumped 17.7 per cent last month, the biggest advance since the government started tracking the series in 1992. Sales dropped a record 14.7 per cent in April. Economists polled by Reuters had forecast retail sales would rise 8 per cent in May.
Retail sales fell 6.1 per cent on a year-on-year basis in May. Even with May’s surge, sales were still about 8 per cent below their February level, leaving consumer spending and the economy on track for their biggest contraction in the second quarter since the Great Depression. The economy slipped into recession in February.
“The economy and retail sales have hit the bottom in May and we have a V-shaped first stage of recovery,” said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. “However, it will take quite some time to get back to anywhere near the levels of retail sales and economic activity we enjoyed around the turn of the year.”
The reopening last month of nonessential businesses that were shuttered in mid-March to slow the spread of COVID-19 has seen Americans flocking to car dealerships and spending more on gasoline, apparel and at restaurants.
Though nearly 20 million people have lost their jobs to the pandemic, record savings and the government’s historic fiscal package of nearly $3 trillion are providing a cushion for consumers through one-time $1,200 checks and generous unemployment benefits. The unprecedented economic upheaval saw personal savings increasing at a record $337 billion in April and the saving rate hitting an all-time high of 33 per cent.
MANUFACTURING STABILIZING
The recovery in retail sales last month was led by a 44.1 per cent acceleration in sales at auto dealerships.
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Receipts at service stations increased 12.8 per cent. Sales at electronics and appliance stores soared 50.5 per cent. Receipts at clothing stores rebounded 188 per cent last month. Still, clothing store sales remained about 63 per cent below their February level.
Sales at furniture stores soared 89.7 per cent. Receipts at restaurants and bars advanced 29.1 per cent. Spending at hobby, musical instrument and book stores vaulted 88.2 per cent. All these categories had suffered record declines in sales in March and April.
Online and mail-order retail sales rose 9.0 per cent. Sales at building material stores rose 10.9 per cent.
The surge in demand for motor vehicles helped to lift manufacturing production 3.8 per cent in May, a separate report from the Fed showed on Tuesday, after collapsing by a record 15.5 per cent in April. Manufacturing, which accounts for 11 per cent of the U.S. economy, remains hobbled by supply-chain disruptions.
Cheaper crude oil has made oil and gas wells unprofitable, impacting demand for heavy equipment and machinery.
“We expect a gradual recovery over the next few years, with growth lagging that of the overall economy,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “One potential upside risk is if firms decide to shorten their supply chains because of the pandemic and the associated disruptions to global trade, moving manufacturing capacity back to the U.S.”
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Stocks on Wall Street rallied on the reports and data showing reduced COVID-19 death rates in a trial of a generic steroid drug. The dollar rose against a basket of currencies. Prices of U.S. Treasuries fell.
Excluding automobiles, gasoline, building materials and food services, retail sales surged 11 per cent in May after tumbling 12.4 per cent in April. These so-called core retail sales correspond most closely with the consumer spending component of the gross domestic product report.
Economists expect consumer spending, which accounts for more than two-thirds of U.S. economic activity, could decline at as much as a 37 per cent annualized rate in the second quarter. That could result in GDP falling at around a 36 per cent pace in that period.
Consumer spending contracted at a 6.8 per cent rate in the first quarter, the sharpest drop since the second quarter of 1980. The economy shrank at a 5 per cent pace in the January-March quarter, the deepest contraction since the 2007-2009 Great Recession.
Weak GDP this quarter was underscored by other data on Tuesday showing a tumble in business inventories in April.
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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.
