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What Canada’s ‘soft’ jobs report could mean for the Bank of Canada

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Canada’s unemployment rate rose for a third-straight month in July as the economy shed 6,400 jobs, a softening which economists say could impact the Bank of Canada’s next interest rate decision.

Statistics Canada said on Friday that in July, the unemployment rate increased 0.1 percentage points 5.5 per cent. July marks the first time the unemployment rate has increased for three consecutive months since the early months of the COVID-19 pandemic.

“The soft July employment report is just the latest arrow in the quiver of signs that the economy is losing momentum,” Doug Porter, chief economist and managing director of economics at BMO, said in a note Friday.

According to Statistics Canada, employment fell among core-aged men aged 25 to 54 years old by 0.4 per cent, and increased among male youth aged 15 to 24 by 0.9 per cent.

There was little variation in employment among young and core-aged women, and among men and women aged 55 and older.

Statistics Canada said job losses were led by the construction industry, while the greatest job gains were made in health care and social assistance.

Employment increased in Alberta, New Brunswick and Prince Edward Island while it declined in Manitoba and Saskatchewan. All other provinces posted little change in July, Statistics Canada said.

More than half of the unemployed (53.6 per cent) had been out of the labour force immediately before becoming unemployed in July, while 38.7 per cent had left or lost a job.

On a year-over-year basis, average hourly wages rose five per cent in July, following increases of 4.2 per cent in June and 5.1 per cent in May.

Rising unemployment comes as high interest rates weigh on the economy, making borrowing more expensive for both businesses and consumers.

 

What the jobs data could mean for the Bank of Canada

The softening in the labour market also has implications for the Bank of Canada’s next interest rate decision on Sept. 6, economists say.

However, the central bank will have additional data to consider as well, including the July inflation report and June GDP figures, which are due in the coming weeks.

The central bank hiked its benchmark rate to five per cent on July 12 in another effort to cool the Canadian economy and bring inflation to its two per cent target. Inflation cooled to 2.8 per cent in June, down from 3.4 per cent in May.

The employment figures, combined with the latest inflation report, shows the case is strong for the Bank of Canada (BoC) not to raise its policy interest rate further, Porter said.

“Looking beyond the next rate decision, we suspect that the bank may be done raising rates, although still-firm wage and core price growth means that rates are likely to stay high for long,” Porter added.

Unlike Porter, James Orlando, director and senior economist with TD Bank, said in a note the central bank “isn’t likely to change its hawkish tone” yet.

“While odds of another rate hike dropped following this report, the BoC will need to see more of the same before it can feel like its job is done,” he said Friday.

“Today’s report is in line with our expectation for a rising unemployment rate and a further slowing in economic momentum through the rest of this year.”

Marc Desormeaux, principal economist with Desjardins, said in a note he expects the Bank of Canada to keep rates on hold at its next meeting on Sept. 6.

“Economic activity appears to be moderating amid sharply higher borrowing costs, and we maintain that the full effects of prior increases have yet to be felt by Canadian consumers and businesses,” Desormeaux said.

“However, the pickup in wage gains and continued boost from population growth suggest that the Bank of Canada will remain attuned to the risk that core persistent inflation stays sticky for a while. That said, with officials expressing the desire to avoid overtightening, we believe that the bar for further hikes is high in light of the recent signs of weakening in growth, employment, and inflation.”

Carrie Freestone, an economist with RBC Economics, said in a note that the July jobs report is a “point in favour” for the central bank.

“Today’s jobs report is a point in favour of keeping the overnight rate at five per cent, but the BoC will closely monitor additional indicators – particularly upcoming inflation and consumer spending reports – to determine whether an additional hike is needed,” Freestone said Friday.

Meanwhile down south, U.S. employers added 187,000 jobs last month. That led America’s unemployment rate to dip to 3.5 per cent from 3.6 per cent in June in a sign that the U.S. job market remains resilient.

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Opinion | Trump’s economy vs. Biden’s — in 17 charts – The Washington Post

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Opinion | Trump’s economy vs. Biden’s — in 17 charts  The Washington Post

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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