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US services index shows biggest part of economy is stirring – BNNBloomberg.ca

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U.S. service providers started to emerge in May from a pandemic-induced tailspin as nationwide lockdowns on business and social interaction began to lift.

The Institute for Supply Management said Wednesday that its non-manufacturing index rose 3.6 points to 45.4.

While the monthly increase was the largest in more than two years, the gauge remained below the 50 mark that shows most service-related industries continued to contract.

The purchasing managers group’s gauge of business activity, which parallels the ISM’s factory production index, jumped 15 points, the most in records dating back to 1997, to a still-tepid 41. Along with an improvement in new orders, the figures are a welcome sign that the economy is stabilizing and will gradually recover from a deep recession.

The median forecast in a Bloomberg survey of economists called for an improvement to 44.4 in the overall non-manufacturing index.

The report, however, also showed the labor market remains severely disrupted by the pandemic. The ISM measure of employment at services, which represent almost 90 per cent of the economy, only rose 1.8 points from the worst reading on record in April.

A Labor Department report on Friday is projected to show another 8 million decline in May payrolls after an unprecedented 20.5 million slump in April. The unemployment rate is forecast to soar to nearly 20 per cent.

A pickup in demand as states lift lockdowns and businesses begin to reopen is needed to help stabilize the job market. The ISM’s report showed an index orders at service providers climbed 9 points to a still-weak 41.9.

Meanwhile, the index of supplier deliveries in non-manufacturing industries fell for the first time in four months, indicating an easing in supply-chain bottlenecks and transportation delays.

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Economy

Canadian home reno spending hit $80B in 2019, outpacing overall economy – BNNBloomberg.ca

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Canadian homeowners shelled out $80.1 billion on home renovations in 2019, according to a new report from Altus Group. The real estate data firm said overall spending was up 2.6 per cent in the year, outpacing overall economic growth.

According to the report, about 75 per cent of that spending was on home upgrades, with the remainder earmarked for necessary repairs. That $61.2 billion spent on upgrades roughly matched overall spending on new home construction, according to Altus.

However, Altus said Canadian home renovation spending growth is expected to grind to a halt amid the economic uncertainty caused by the COVID-19 pandemic. The firm is forecasting home renovation spending will fall 5.2 per cent this year after hitting $80.1 billion in 2019.

Altus Group forecast renovation spending will drop in all regions, with spending set to fall the most in Quebec, Alberta and Ontario. However, Altus sees a strong snap-back in 2021, forecasting a 5.3-per-cent jump in renovation spending due to falling five-year mortgage rates and the drop in rates on home equity lines of credit.

That drop in the cost of borrowing could prove significant, as Canadians increasingly borrow against the value of their homes. Altus estimated Canadians borrowed at least $14 billion dollars to finance their renovation plans last year, with home equity lines of credit (HELOCs) and other secured financing products accounting for about 60 per cent of the borrowing.

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Economy

Bungled U.S. reopening risks global economic recovery – Wealth Professional

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Picton Mahoney had previously drawn upon the experience of the global financial crisis to outline a five-step playbook to respond to the pandemic turmoil, stabilize market panic and resurrect the global economy. They were: 1, Recognize the problem; 2, Swiftly deploy aggressive monetary stimulus measures; 3, Engage the banking system in various social financing measures; 4, Enact large fiscal stimulus programs to support people and industries in sudden turmoil; 5, Articulate and execute a clear plan to reopen the economy that minimized new virus outbreaks.

While the first four steps have been implemented swiftly, the last step is being held up by the all-important U.S. economy, which could lead to surging virus case counts and both economic and market volatility as the restart process continues.

The outlook said: “The U.S. has no national pandemic strategy that we can see, other than for the federal government and President Trump to apply large amounts of pressure to reopen as much of the economy as possible, while downplaying the importance of testing, contact tracing, science, etc.

“Without any coherent national plan for reopening, states and cities have been forced to fill the void with an assortment of different plans. Worse yet, it appears the reopening process in the U.S. has become politicized, with Republican-controlled states opening aggressively, compared with Democrat-controlled states. There are even ideologically driven arguments in the U.S. about whether masks should be worn or not. As a result, efforts to reopen the U.S. economy are leading to spiking case counts, especially in highly populated southern regions.”

The confidence an effective plan instils in its population is evident in Germany, where dining reservations in the hard-hit restaurant sector are virtually back to normal, while in the U.S. they are still well below normal levels, and are showing the potential to fall lower again, given the recent COVID-19 case count explosion.

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How Ottawa can end CERB, boost the economy and help the unemployed – The Globe and Mail

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The good news is that our economy is reopening. The bad news is Canada has a ways to go before recovering all the jobs lost this year.

The return journey will take months and, if there are headwinds or speed bumps, it could take years. That means even as things improve for most Canadians, a large minority will be unemployed or underemployed for some time, through no fault of their own. They are going to need support, and the traditional Employment Insurance program won’t cut it, since many of the unemployed do not qualify for it.

But first, the good news.

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The Canadian labour market has already recouped more than half its pandemic job losses. By April, 5.5 million workers had been affected by the economic shutdown – three million lost their jobs, and 2.5 million were still employed yet not working. But between April and July, the economy added more than 1.6 million jobs, according to Statistics Canada, and the number of people working less than half their usual hours fell below one million.

That means the number of workers affected by COVID-19 has dropped from 5.5 million to 2.3 million. And the unemployment rate, which rose from 5.6 per cent in February to 13.7 per cent in May, has fallen back to 10.9 per cent. There is every indication that those numbers will continue to decline in August and – assuming no health or economic speed bumps – through the fall.

To keep this moving in the right direction, the most important thing is continued progress on reopening the economy. And that in turn is dependent on smart public-health measures that allow reopening to happen, without sparking major COVID-19 outbreaks.

But even if everything goes right – steady economic recovery, no second pandemic spike, and strong demand from our chief export market in the United States – Canada’s job market won’t get back to where it was in February until late 2021 or 2022. The excess of job seekers over jobs is dropping fast, but hundreds of thousands of idle Canadian workers will not find work for some time.

The question is what should be done to help them.

The Trudeau government has yet to spell out the details but, later this month, it is going to allow the Canada Emergency Response Benefit (CERB) program to begin wrapping up, transferring responsibility for supporting most jobless people to a redesigned Employment Insurance program. In principle, that’s not a bad idea. It all comes down to how EI is redesigned.

CERB had to be created for two reasons. First, because EI’s processing systems couldn’t handle millions of people all losing their jobs, and all applying for benefits, at the same time. And second, because most unemployed Canadians don’t quality for EI. In 2018, only 42 per cent of the unemployed were eligible.

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The tricky balance Ottawa has to strike involves providing a robust safety net for those who are genuinely unemployed – of whom there will still be about two million in September, and hundreds of thousands next year – while not providing that help in a way that discourages people from working.

The best way to do that may be to relax the Employment Insurance rules. To qualify for EI now, a worker must have worked between 420 and 700 insurable hours, depending on their local unemployment rate, and have accumulated those hours either in the past year or since their last claim, whichever period is shorter. Temporarily relaxing the criteria would allow more people to qualify.

However, a lot of today’s income-less people used to be self-employed, and they may not qualify for EI, even under looser rules. Ottawa is going to have to create some kind of bridge program for them – and it has promised to do so.

Getting more unemployed people into the EI tent makes sense. EI allows people to work while receiving benefits, with only some of their earnings clawed back, which means that finding work is rewarded rather than punished. EI also offers programs for education and retraining – and given that a period of joblessness is the best time possible for someone to acquire new skills, the financial support for unemployed workers to do so should, if anything, be expanded.

The ideal outcome? A more accessible EI program, but one that, come the new year, few Canadians are applying for – not because the rules are too restrictive, but because the economic recovery has been so successful.

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