(Bloomberg) — US consumer spending — the economy’s main engine — has lost steam for most of this year, portending weaker growth ahead while also helping to cool inflation.
Inflation-adjusted spending was little changed in May and has essentially stalled since surging in the first month of 2023, according to Bureau of Economic Analysis figures published Friday. That may help to ease price pressures further after one of the Federal Reserve’s preferred inflation metrics fell last month to the lowest level in more than two years.
On the heels of data out Thursday that showed US gross domestic product was revised up notably in the first quarter, due in part to better-than-expected spending, Friday’s figures set the economy up for a substantial slowdown.
“We had already expected a slowing in second-quarter spending,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients. “It now appears that we may need to cut our own forecast in half.”
Weakness in consumer spending contrasts with recent data that have otherwise painted a picture of a resilient economy rather than one on the brink of recession. That’s been in large part due to the ongoing strength of the job market.
Solid advances in jobs and wages, which have bolstered the economy through over a year of interest-rate hikes, have been at the center of the Fed’s messaging that rates may need to go even higher to ultimately tame inflation. Even though Friday’s figures showed spending and inflation cooled, they still may not be enough to dissuade officials from more tightening, Rubeela Farooqi, chief US economist at High Frequency Economics, said in a note.
“For the Fed, a moderation in consumption will be welcome news, as will a deceleration in inflation,” Farooqi said. “However, these developments are not likely to change the very near-term path of policy, with policymakers committed to the view that rates need to rise further, to a more restrictive stance.”
The decrease in real spending on goods largely reflected a drop in purchases of motor vehicles, the report showed. Services spending increased on firmer outlays for international travel and transportation.
Consumers are also saving at one of the highest rates since early last year, which could signal additional caution going forward.
Inflation Easing
The personal consumption expenditures price index rose 0.1% in May, Commerce Department figures showed Friday. From a year ago, the measure eased to 3.8%, the slowest pace in more than two years.
Under the hood of the government report, a key price metric flagged by Fed Chair Jerome Powell showed a welcome slowdown. Services inflation excluding housing and energy services increased 0.2% in May from a month earlier, the smallest advance since July of last year, according to Bloomberg calculations. The figure was up 4.5% from a year ago.
Treasuries and the S&P 500 rallied after the report, though traders still expect the Fed to resume hiking interest rates at next month’s meeting, according to futures contracts.
What Bloomberg Economics Says…
“May’s personal income and outlays data show the relationship between income growth and inflation loosening incrementally. That makes us skeptical the Fed will need to hike rates by the full 50 basis points shown in the latest dot plot.”
— Stuart Paul, Eliza Winger and Jonathan Church
To read the full note, click here
While Friday’s numbers suggest that rates may not need to go as high as many Fed policymakers forecast, there’s still plenty of data between now and the central bank’s July meeting that could shape their thinking. The June jobs report, out next week, is expected to show still-strong hiring and low unemployment, and officials will also see updated readings on consumer and producer prices as well as retail sales in the coming weeks.
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.
