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What happened in the economy in 2021 – Yahoo Canada Finance

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The pandemic remained a major force influencing growth in the U.S. economy in 2021.

But as vaccinations picked up and stay-in-place orders began getting lifted, the economy made notable strides in recovering throughout the year, albeit while remaining below pre-pandemic levels on many major metrics. But on other metrics — and notably on inflation — the economy has handily exceeded its pre-virus trends.

“We’re not going back to the same economy we had in February of 2020,” Federal Reserve Chair Jerome Powell said during his post-FOMC meeting press conference on Dec. 15. “And I think early on … the sense was that that’s where we were headed. The post-pandemic labor market and the economy, in general, will be different.”

And indeed, many aspects of economic activity have shifted since the rapid spread of the coronavirus in the U.S. in early 2020. Extraordinary monetary and fiscal policies during the crisis provided stimulus for more than a year, helping buoy economic activity and bolster consumption. And as demand for goods, services and venturing out roared back, all of these factors have coalesced to drive up prices at multi-decade high rates.

Still, concerns about the coronavirus have lingered. The discovery of the Omicron variant in late November spurred a renewed wave of restrictions globally in recent weeks. And it has raised the specter that Americans may also begin to stay home more frequently and curb spending on services.

But so far, economic growth as a whole has increased at a solid clip in 2021. U.S. gross domestic product (GDP) grew at a real annualized rate of 6.4% in the first quarter, then 6.7% in the second and 2.1% in the third, based on the latest estimate for the quarter. The size of the economy as measured by GDP surpassed pre-pandemic levels in the second quarter this year, following 2020’s brief but rapid plunge into recession.

Heading into the new year, here’s a look back at how the U.S. economy evolved throughout 2021.

Labor market

The labor market has been one of the areas of the economy most profoundly impacted by the pandemic.

Jobs have come back at a steady pace throughout this year, after more than 22 million jobs were lost between March 2020 and April 2020 alone at the height of stay-in-place orders.

U.S. employers have added back payrolls in every single month so far in 2021, according to the Labor Department’s monthly jobs reports. As many as nearly 1.1 million jobs were added back in July alone, while as few as 210,000 jobs were added back as of the latest jobs report for November.

The unemployment rate has also come down. It last improved to a reading of 4.2% in November, but still held above the 50-year low of 3.5% seen before the pandemic in February 2020. The jobless rate began the year at 6.3% in January.

“In one sentence, what surprised me is how quickly we have recovered,” Betsey Stevenson, former Labor Department chief economist and current professor of public policy and economics at the University of Michigan, told Yahoo Finance.

“If you talked to people when this pandemic first started, they were worried that employers would be looking to automate and to replace workers with technology because technology doesn’t get COVID,” she added. “And in fact, what we’ve seen is just record job openings. If we filled every single job opening that’s out there right now, we’d have employment that was not just well above where we were pre-pandemic, but well above what anyone predicted pre-pandemic.”

Even with the continued job growth throughout the year, employment remains below levels from February 2020, and job openings remain near record levels. This has especially shown up in the size of the civilian labor force, which is still much smaller than it was before the virus. As of November, the civilian labor force was down by 2.4 million workers, compared to February 2020. And the labor force participation rate was last at 61.8% — short of February 2020’s 63.3%.

And while more Americans are on the sidelines of the labor force than before the pandemic, job vacancies have soared, especially in the second half of this year.

As vaccinations began ramping up in the U.S. in the spring and summer, demand for goods and services and going back out again began to surge — and hiring employers struggled to keep pace with that demand. That has especially been true for the service economy, which had already been hit hard during the pandemic with stay-in-place orders and layoffs, and was struggling to bring back enough workers to keep up with the pick-up in dining out, traveling on airplanes and shopping in stores.

In July, job openings hit a record high of nearly 11.1 million in the U.S. And as of the latest data for October, those vacancies were again above the 11 million mark. The quits rate has also remained elevated, suggesting workers have been feeling confident about their ability to leave their current jobs and find new ones. This rate came in at 2.9% in October, or just a tick below September’s all-time high of 3.0%.

The fact that labor supply has been the biggest concern than demand has also shown up in the Labor Department’s weekly jobless claims report. These hit the lowest level since 1969 in early December at 188,000.

“Conflicting signals about slack that have plagued the labor market should become more harmonious by late 2022. Early on, pandemic-induced constraints on labor supply should linger, keeping wage growth firm and helping the unemployment rate to match pre-pandemic lows next year,” wrote Deutsche Bank economists led by Matthew Luzzetti in a note last week. The firm expects the unemployment rate to reach 3.5% by the end of 2022, and then drop to as low as about 3.25% in 2023.

“Beyond, a more convincing return of labor supply should help to ease wage pressures and moderate the decline in measures of slack,” they added. “Even so, our forecast for strong growth momentum pushes the unemployment rate to the lowest level in almost seven decades by 2023.”

Inflation

Inflation became a central focus for Wall Street and Main Street alike in 2021.

Outsized demand and persistent supply-side snarls throughout the second half of the year especially contributed to rising price pressures across the broad economy.

Most recently, consumer prices surged at their fastest pace since 1982 in November, with the Bureau of Labor Statistics’ Consumer Price Index (CPI) jumping by 6.8% over the same month last year. Year-over-year increases in CPI had averaged just 1.8% throughout 2019 before the pandemic.

Producer prices have also risen sharply. Wholesale prices posted their fastest jump on record last month, surging 9.6% over November 2020. This Producer Price Index (PPI) began 2021 by posting just 1.6% 12-month price growth.

Core personal consumption expenditures (PCE), or the Federal Reserve’s preferred inflation gauge stripping out volatile food and energy prices, last posted a 4.5% year-on-year increase in November, coming in well above the central bank’s 2% target and reaching the fastest pace since 1991. Prior to the pandemic, core inflation had consistently undershot the Fed’s benchmark, and averaged just a 1.7% year-on-year increase throughout 2019.

While supply-side constraints including labor shortages, port congestion and supply shortages have been major drivers of the increases in inflation, many economists pointed out that the more than year-long regime of ultra-accommodative monetary policy also prevented there from being a lid on price increases this year.

“Inflation jumped in 2021 on the back of supply and demand mismatches. We see inflation settling at levels higher than pre-COVID whenever these supply bottlenecks ease,” BlackRock Investment Institute strategists led by Philipp Hildebrand and Jean Boivin wrote in the firm’s 2022 Global Outlook published on Dec. 13. “One driver of this: Major central banks are living with more inflation than they would have in the past, showing a much more muted policy reaction.”

Earlier during the year, the Fed had maintained inflation would prove “transitory,” and ultimately dissipate as supply-side constraints began to attenuate and as the economic data lapped last year’s pandemic-depressed levels. This term to describe the lingering price increases was retired in late November, however, as Fed Chair Powell acknowledged the prospects of more persistent inflation.

Consumer spending and confidence

Strength in U.S. consumer spending was one of the driving features of the recovery this year.

Personal consumption, which comprises about two-thirds of U.S. economy activity, soared by 11.4% in the third quarter before accelerating to a 12.0% jump in the second quarter, and then pulling back to a just 1.7% annualized rise in the third quarter, according to data from the Bureau of Economic Analysis. 

Stimulus from the U.S. government was one critical component of the surge in consumption at the beginning of this year, as multiple rounds of direct checks to most Americans authorized under Congress’s coronavirus relief bills helped bolster spending.

The surge and then moderation in spending has also been evident in the Commerce Department’s monthly retail sales figures. At their peak rate this year, retail sales grew 11.3% month-on-month in March alone. However, these month-over-month increases have decelerated markedly, and retail sales last grew just 0.3% in November. On a year-over-year basis, however, retail sales remained higher by 18.2%.

People wear facemasks as they walk through Herald Square on January 8, 2021 in New York City. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)People wear facemasks as they walk through Herald Square on January 8, 2021 in New York City. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

People wear facemasks as they walk through Herald Square on January 8, 2021 in New York City. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

According to some economists, the slowdown in retail sales is likely to continue into next year after an initial surge in consumer demand gets further unwound.

“Evidence of accelerated holiday spending, which lifted fourth quarter consumer spending, will likely yield to a post-holiday sales vacuum as supply constraints limit the incentive to offer the deep discounting typically associated with sales activity post-holiday,” wrote Steven Ricchiuto, U.S. chief economist for Mizuho Securities, in a note. “The slowing in November retail sales, after a robust September and October, is very consistent with our overall economic assessment as supply chain concerns pulled sales forward and with little, if any, pent-up demand left in the economy.”

And while consumer spending has held up for now, prospects that persistent inflation and concerns over new coronavirus variants could curb spending going forward have also been looming. The University of Michigan’s closely watched Surveys of Consumers showed an only modest uptick in consumer sentiment in December after reaching a decade low in November. And one-year inflation expectations among consumers were unchanged at 4.9% from November to December, holding at the highest level since 2008.

The Conference Board’s Consumer Confidence Index also last posted a decrease in November to reverse course from October. The index came in at 109.5 for last month, dipping well below the 2021 high of 128.9 in June, but still rising compared to the reading of 87.1 posted in January this year. Lynn Franco, senior director of economic indicators at The Conference Board, cited “concerns about rising prices — and, to a lesser degree, the Delta variant” as cause for the most recent drop in confidence.

Ultimately, the trajectory for both the virus and inflation will be key in determining the path forward for consumer confidence and spending, some economists said.

“Even though people are making more [as] their wages have risen, they’re not rising as fast as prices are,” Megan Greene, global chief economist at Kroll Institute, told Yahoo Finance Live. “And so I think this will start to bite into demand.”

“I think we could continue to have supply chain disruptions through next year,” she added. “That means we’ll have higher prices for sure — that will drag on consumer demand. I think we’ll still grow above potential in the U.S.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter

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Ahead of election, Macron banks on rosy French economy, new jobs – Financial Post

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Article content

PARIS — President Emmanuel Macron will on Monday tout 21 new foreign investment projects in France and a booming economy as proof his economic reforms have been bearing fruit less than three months before a presidential election in which he is expected to run.

During a visit to Alsace in the east, Macron will announce a 300-million-euro ($342 million) industrial project by German chemical giant BASF, one of 21 new projects worth 4 billion euros and 10,000 jobs as part of a drive to attract foreign investors, his office said.

Article content

As the presidential race heats up, his aides are keen to shift the debate away from immigration and law-and-order issues and put the spotlight on the economy, which has been recovering strongly from the COVID-19 pandemic.

“This is the result of all the reforms that were carried out since the start of the mandate,” a presidential aide told reporters.

“Three months before an election, we could have expected investors to be in wait-and-see mode because of the uncertainty of an election. Instead, we see very strong confidence from foreign investors in the president’s economic policy,” he said.

Since 2017, Macron has pushed through a cocktail of supply-side economic reforms meant to boost businesses’ competitiveness, cut taxes on investors and loosen strict labor market rules.

Article content

Critics say he has acted as “president of the rich” who wants to do away with France’s cherished social safety nets and has cut welfare benefits for some of the poorest.

But three months ahead of the April election, indicators show the French economy is booming, with growth expected to have hit 6.7% in 2021 and France having returned closer to pre-pandemic levels than any G7 peer bar the United States.

Macron supporters also received an unexpected boost from economist Paul Krugman on Friday.

“In fact, among major advanced economies, the star performer of the pandemic era, arguably, is … France,” he wrote in his New York Times column https://www.nytimes.com/2022/01/14/opinion/france-economy-pandemic-socialism.html. ($1 = 0.8761 euros) (Reporting by Michel Rose; Editing by Emelia Sithole-Matarise)

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Dollar finds a footing as traders brace for hawkish Fed

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The dollar clung to a late week bounce on Monday as investors braced for January’s U.S. Federal Reserve meeting and raised bets it will chart a year ahead holding several rate hikes, while China surprised analysts with a benchmark cut.

Chinese economic growth data, due later on Monday (0200 GMT), a Bank of Japan policy meeting which concludes on Tuesday, British inflation data on Wednesday and Australian jobs figures on Thursday are also in view as traders gauge the global policy outlook.

The dollar was 0.2% higher at 114.45 yen early in the Asia session, about 0.8% above a Friday low. It also edged about 0.1% firmer on the euro to $1.1403.

The moves follow the dollar’s jump on Friday along with U.S. yields and underscore support for the greenback from the hawkish rates outlook, even if momentum for gains has started to wane.

The U.S. dollar index, which declined sharply last week until Friday’s leap, sat at 95.225 in Asia on Monday.

“Friday’s move suggest to me that the interest rate driver for dollar strength is not dead and buried,” said National Australia Bank’s head of foreign exchange strategy Ray Attrill.

He said it may not necessarily return to drive new dollar highs, but added: “We’ve had a hawkish twist out of every Fed meeting since June last year.”

The Fed meets Jan. 25-26 and is not expected to move rates, but there is a growing drumbeat of hawkish comments coming from within and outside the central bank.

Last week, J.P. Morgan CEO Jamie Dimon remarked that there could be “six or seven” hikes this year and billionaire hedge fund manager Bill Ackman floated on Twitter over the weekend the possibility of an initial 50 basis point hike to tame inflation.

The cash Treasury market was closed for a holiday on Monday but 10-year futures were sold to a two-year low and Fed funds futures also fell, reflecting a strengthening conviction in the market of at least four hikes in 2022.

The Australian and New Zealand dollars, which dropped sharply on Friday, remained under pressure on Monday. The Aussie was last down 0.2% at $0.7200, ending for now a brief foray above resistance around $0.7276. [AUD/]

The kiwi edged 0.2% lower to $0.6791.

In China, bonds rallied and the yuan slipped after the central bank cut borrowing costs for medium-term loans for the first time since April 2020, defying market expectations.

Ten-year government bond futures rose to their highest since June 2020 after the move and the yuan began onshore trade marginally softer at 6.3555 per dollar.

Chinese gross domestic product figures due at 0200 GMT are expected to show annual growth at its slowest in 18 months as a property downturn drags on demand.

Elsewhere a month-long rally for sterling has petered out around its 200-day moving average. It held at $1.3669 on Monday, but analysts say it could resume gains if inflation data makes the case for higher interest rates.

“Interest rate markets are currently pricing an 80% + chance of a 25 bp rate hike by the Bank of England on 3 February,” said Commonwealth Bank of Australia strategist Joe Capurso.

“A quicker pace of inflation could see pricing move closer to 100%.”

========================================================

Currency bid prices at 0139 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1402 $1.1417 -0.13% +0.29% +1.1425 +1.1401

 

Dollar/Yen

114.4500 114.2250 +0.20% -0.50% +114.5050 +114.2800

 

Euro/Yen

130.51 130.36 +0.12% +0.15% +130.5500 +130.3200

 

Dollar/Swiss

0.9156 0.9140 +0.17% +0.37% +0.9158 +0.9143

 

Sterling/Dollar

1.3665 1.3685 -0.14% +1.05% +1.3675 +1.3665

 

Dollar/Canadian

1.2549 1.2557 -0.06% -0.74% +1.2555 +1.2539

 

Aussie/Dollar

0.7200 0.7218 -0.24% -0.95% +0.7224 +0.7199

 

NZ

Dollar/Dollar 0.6790 0.6810 -0.28% -0.78% +0.6820 +0.6791

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Tom Westbrook; Editing by Jacqueline Wong)

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China’s Economy Slowed Late Last Year on Real Estate Troubles – The New York Times

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Economic output climbed 4 percent in the last quarter of 2021, slowing from the previous period that ran July through September. Growth has faltered lately as home buyers and consumers become cautious.

BEIJING — Construction and property sales have slumped. Small businesses have shut because of rising costs and weak sales. Debt-laden local governments are cutting the pay of civil servants.

China’s economy slowed markedly in the final months of last year as government measures to limit real estate speculation hurt other sectors as well. Lockdowns and travel restrictions to contain the coronavirus also dented consumer spending. Stringent regulations on everything from internet businesses to after-school tutoring companies have set off a wave of layoffs.

China’s National Bureau of Statistics said Monday that economic output from October through December was only 4 percent higher than during the same period a year earlier. That represented a further deceleration from the 4.9 percent growth in the third quarter, July through September.

The world’s demand for consumer electronics, furniture and other home comforts during the pandemic has kept exports strong, preventing China’s growth from stalling. Over all of last year, China’s economic output was 8.1 percent higher than in 2020, the government said. But much of the growth was in the first half of last year.

CHINATOPIX, via Associated Press

The snapshot of China’s economy, the main locomotive of global growth in the last few years, adds to expectations that the broader world economic outlook is beginning to dim. Making matters worse, the Omicron variant of the coronavirus is now starting to spread in China, leading to more restrictions around the country and raising fears of renewed disruption of supply chains.

The slowing economy poses a dilemma for China’s leaders. The measures they have imposed to address income inequality and rein in companies are part of a long-term plan to protect the economy and national security. But officials are wary of causing short-term economic instability, particularly in a year of unusual political importance.

Next month, China hosts the Winter Olympics in Beijing, which will focus an international spotlight on the country’s performance. In the fall, Xi Jinping, China’s leader, is expected to claim a third five-year term at a Communist Party congress.

With growth in his country slowing, demand slackening and debt still at near-record levels, Mr. Xi could face some of the biggest economic challenges since Deng Xiaoping began lifting the country out of its Maoist straitjacket four decades ago.

“I’m afraid that the operation and development of China’s economy in the next several years may be relatively difficult,” Li Daokui, a prominent economist and Chinese government adviser, said in a speech late last month. “Looking at the five years as a whole, it may be the most difficult period since our reform and opening up 40 years ago.”

China also faces the problem of rapid aging that could create an even greater burden on China’s economy and its labor force. The National Bureau of Statistics also said that China’s birthrate fell sharply last year and is now barely higher than the death rate.

As costs for many raw materials have risen and the pandemic has prompted some consumers to stay home, millions of private businesses have crumbled, most of them small and family owned.

That is a big concern because private companies are the backbone of the Chinese economy, accounting for three-fifths of output and four-fifths of urban employment.

Kang Shiqing invested much of his savings nearly three years ago to open a women’s clothing store in Nanping, a river town in southeastern China’s Fujian Province. But when the pandemic hit a year later, the number of customers dropped drastically and never recovered.

As in many countries, there has been a broad shift in China toward online shopping, which can undercut stores by using less labor and operating from inexpensive warehouses. Mr. Kang was stuck paying high rent for his store despite the pandemic. He finally closed it in June.

“We can hardly survive,” he said.

Another persistent difficulty for small businesses in China is the high cost of borrowing, often at double-digit interest rates from private lenders.

Chinese leaders are aware of the challenges private companies face. The central bank is taking steps to encourage the country’s state-controlled commercial banks to lend more money to small businesses. Premier Li Keqiang has promised further cuts in taxes and fees to help the country’s many struggling small businesses.

On Monday, China’s central bank made a small move to reduce interest rates, which could help reduce slightly the interest costs of the country’s heavily indebted real estate developers. The central bank pushed down by a tenth of a percentage point its interest rate benchmark for some one-year loans, to 2.85 percent.

The building and fitting out of new homes has represented a quarter of China’s economy. Heavy lending and widespread speculation have helped China erect the equivalent of 140 square feet of new housing for every urban resident in the past two decades.

This autumn, the sector faltered. The government wants to limit speculation and deflate a bubble that had made new homes unaffordable for young families.

China Evergrande Group is only the largest and most visible of a lengthening list of real estate developers in China that have run into severe financial difficulty lately. Kaisa Group, China Aoyuan Property Group and Fantasia are among other developers that have struggled to make payments as bond investors become more wary of lending money to China’s real estate sector.

Gilles Sabrié for The New York Times

As real estate companies try to conserve cash, they are starting fewer construction projects. And that has been a big problem for the economy. The price of steel reinforcing bars for the concrete in apartment towers, for example, dropped by a quarter in October and November before stabilizing at a much lower level in December.

The decline in home prices in smaller cities has hurt the value of people’s assets, which in turn made them less willing to spend. Even in Shanghai and Beijing, apartment prices are no longer surging.

There have been faint hints of renewed government support for the real estate sector in recent weeks, but no sign of a return to lavish lending by state-controlled banks.

The financial distress of Evergrande “is a signal that money will be pushed from real estate to the stock market,” said Hu Jinghui, an economist who is the former chairman of the China Alliance of Real Estate Agencies, a national trade group. “The policies can be loosened, but there can be no return to the past.”

The slowdown in the housing market has also hurt local governments, which rely on land sales as a key source of revenue.

The International Monetary Fund estimates that government land sales each year have been raising money equal to 7 percent of the country’s annual economic output. But in recent months, developers have curtailed land purchases.

Starved of revenue, some local governments have halted hiring and cut bonuses and benefits for civil servants, prompting widespread complaints on social media.

In Hangzhou, the capital of Zhejiang Province, a civil servant’s complaint of a 25 percent cut in her pay spread quickly on the internet. The municipal government did not respond to a fax requesting comment. In northern Heilongjiang Province, the city of Hegang announced that it would not hire any more “low-level” workers. City officials deleted the announcement from the government’s website after it drew public attention.

Some governments have also raised fees on businesses to try to make up for the shortfall.

Bazhou, a city in Hebei Province, collected 11 times as much money in fines on small businesses from October through December as it did in the first nine months of last year. Beijing criticized the city for undermining a national effort to reduce the cost of doing business.

Exports are setting records. Families around the world have responded to being stuck at home during the pandemic by spending less on services and more on consumer goods now made mainly in Chinese factories.

Some areas of consumer spending have been fairly robust, notably the luxury sector, with sports cars and jewelry selling well.

CHINATOPIX, via Associated Press

Few anticipate that the government will allow a severe economic downturn this year, ahead of the Communist Party congress. Economists expect the government to soften its restrictions on lending and step up government spending.

“The first half of the year will be challenging,” said Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance. “But then the second half will see a rebound.”

Li You contributed research.

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