(Bloomberg) — The US economy shined in its latest report card, supporting calls that it can dodge recession despite the most aggressive interest-rate hikes in a generation.
Gross domestic product advanced in the second quarter by more than most economists’ estimates, buoyed by resilient consumer spending and robust business investment. Even so, price pressures still cooled, with underlying inflation rising at the slowest pace in more than two years.
Combined with other data Thursday that showed stronger-than-expected orders for business equipment and fewer applications for unemployment benefits, the GDP figures bolster the case that the Federal Reserve can tame inflation without putting millions of people out of work.
It also risks supporting another Fed rate hike after the central bank lifted borrowing costs to the highest level in 22 years on Wednesday and left the door open for more.
“While economists remain divided on the probability of recession at present, today’s report raises the odds of a soft landing,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note. “That said, it likely also keeps the heat somewhat turned up on the Fed.”
Treasury yields rose after the report. Fed Chair Jerome Powell, speaking in a press conference after the central bank’s latest move, said policymakers could go either way with another hike or holding steady depending on what the data show in the next eight weeks.
He also said the central bank staff is no longer forecasting a recession. Similarly, some Wall Street economists are beginning to reassess the timing or odds of a downturn.
What officials would like to see, however, is below-trend growth, and the GDP report may be too strong for comfort. Despite a rapid ascent in interest rates since early 2022, consumers and businesses are still spending with vigor so far this year.
Consumer spending — the engine of the US economy — increased at a 1.6% pace after surging at the start of the year, the Commerce Department’s initial estimate showed Thursday. The latest print was more than forecast and reflected solid outlays on both goods and services.
One caveat of the report was consumer spending on food services and accommodations subtracted the most from GDP since the second quarter of 2020.
More remarkable was spending by businesses. Investment in structures continued to grow at a breakneck pace, bolstered by recent efforts to shore up domestic factory production. The Biden administration championed a series of bills that provide both direct funding and tax incentives for private companies to invest in areas like semiconductors and electric vehicles.
“The biggest surprise to me was the business sector strength, which seems to be driven by implementation” of legislation like the CHIPS Act and Inflation Reduction Act, said Yelena Shulyatyeva, senior US economist at BNP Paribas.
Purchases of business equipment bounded ahead at the fastest pace in more than a year, largely due to stronger spending on transportation equipment such as aircraft and vehicles.
A separate government report on factory orders showed stronger-than-expected bookings of business equipment. Orders for all types of durable goods rose 4.7% in June, the most in nearly three years and fueled by bookings for commercial aircraft.
What Bloomberg Economics Says…
“The second quarter’s accelerated GDP growth reflects an economic force working against the Fed’s efforts to reduce inflation – expansionary fiscal policy… If the recession we predict this year is delayed rather than averted, and the Fed ultimately has to hike more than we currently anticipate — the most likely culprit will be Bidenomics.”
— Anna Wong, economist
To read the full note, click here.
The quarterly spending and inflation figures precede Friday’s release of June data, which will provide an indication of economic momentum ahead of the third quarter. Economists expect a pickup in real consumer outlays and the slowest annual inflation rate in more than two years.
Those are the ingredients of a soft landing, especially with jobless claims dropping to the lowest levels since early this year. However, it’s a delicate balance for the Fed to strike to ensure that stronger growth doesn’t reignite price pressures.
“This is the closest we’ve come to a Goldilocks scenario since the onset of the pandemic,” said Diane Swonk, chief economist at KPMG LLP in Chicago. “What the Fed has to worry about is whether or not there will be a later rebound in inflation.”
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.
