The record-long U.S. economic expansion is over after almost 11 years, with the deepest recession in at least eight decades now under way.
The world’s largest economy shrank at a 4.8 per cent annualized pace in the first quarter, the biggest slide since 2008 and the first contraction since 2014, as the need to fight the coronavirus forced businesses to close and consumers to stay home.
The downturn, reported Wednesday by the Commerce Department, was led by the steepest drop in consumer spending since 1980 and the fastest decline in business investment in almost 11 years.
The worse-than-expected report reveals the wide-scale hit to U.S. output from Covid-19 and the subsequent freezing of economic activity.
The current quarter is likely to be far worse, with analysts expecting the economy to tumble by a record amount in data going back to the 1940s. Bloomberg Economics has projected a 37 per cent annualized contraction, but UniCredit is the most bearish with a 65 per cent estimate.
Crisis, Recovery
That will end an expansion that began in mid-2009 when the economy began to recover from the financial crisis. Since then, gross domestic product swelled by US$7 trillion and unemployment had fallen to a five-decade low of 3.5 per cent, although some have questioned how widely the benefits have been spread with an increasing concentration of wealth at the top and wages rising at a relatively tepid pace for most of the expansion.
The pain is being felt worldwide with China already reporting a sharp decline in output and the euro-area set to deliver grim figures Thursday.
As the U.S. government and states debate when and how fast to lift restrictions on companies and schools, there remains considerable doubt over the duration of the economic slowdown and the shape of the recovery.
Early hopes for a rapid rebound have faded with most analysts assuming a jump in activity once the virus passes will be followed by a slower resumption of growth. So far, many data points signal a deepening contraction, while others have shown slight improvement, according to a Bloomberg Economics tracker.
Consumers Wary
Despite massive government aid packages and near-zero interest rates, businesses big and small risk going bankrupt, while consumers may remain wary of hitting shops and restaurants amid health concerns, higher debt burdens and job insecurity.
Another big question is how the recession affects the re-election chances of President Donald Trump, who lately has been pushing for removal of the constraints after losing the ability to run on a strong economy.
At the Federal Reserve, which slashed rates and rolled out a slew of emergency and unprecedented lending programs, Chairman Jerome Powell and colleagues are trying to limit the virus’s damage to jobs and business while setting the conditions for recovery.
They conclude a two-day meeting later Wednesday, with a statement expected at 2 p.m. in Washington and a press conference by Powell at 2:30 p.m.
While two quarters of contraction is considered by most to constitute a recession, the official call in the U.S. is made by the Business Cycle Dating Committee, a panel of economists at the National Bureau of Economic Research. They look at a wide range of indicators including consumer spending, employment and GDP.
The analysis can take a while. In the last recession, which became the longest since World War II, the committee didn’t make the determination for nearly a year after the downturn started.
In any case, the GDP figures underscore what’s already clear from government data showing 26 million Americans filing for unemployment, along with plunges in retail sales and factory production.
The contraction in first-quarter GDP — the first decline since a 1.1 per cent drop in 2014 — compared with the median projection for a 4 per cent drop in a Bloomberg survey of economists. In January, analysts were forecasting growth of 1.6 per cent.
Spending Habits
Consumer spending, which had already begun to cool in the second half of 2019, fell at a 7.6 per cent rate. Changing consumption habits were evident in the report, as the biggest increase since 2003 in spending on nondurable goods such as food was more than offset by the largest slump in purchases of durable goods in more than 11 years.
Consumption is forecast to be much weaker in the second quarter because broader government measures including closures of restaurants and stores didn’t start in earnest until mid-to-late March, and they continue today in much of the U.S.
Business investment, already down for three straight quarters as the U.S.-China trade war kept companies guessing, also took a big hit. Companies slowed spending on structures and equipment. Investment in software rose, however, potentially reflecting efforts to help employees work from home.
Exports of services fell by the most since 1975, reflecting a decline in international travelers coming to the U.S.
The first-quarter GDP figures will be revised several times, and some economists broadly expect the reading to become weaker as more data and adjustments are made.
–With assistance from Kristy Scheuble and Sophie Caronello.
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.