After the Federal Reserve fired nearly all of its bullets Sunday in a bid to rescue the teetering U.S. economy from the devastating effects of the coronavirus, investors promptly replied, “Next!”
Markets plunged again Monday after the Fed’s decision to cut its key interest rate to zero, among other historic moves, with the Dow Jones industrial average plummeting nearly 3,000 points, or 13%. And so hopes of at least minimizing a recession that almost certainly has already begun now rest with Congress.
The Fed can open the economy’s lending spigots wider but it can’t aid airlines, retailers or restaurants whose revenue has fallen off a cliff as customers fearful of the coronavirus hunker down at home. Nor can it shore up the employees of those businesses who have lost their jobs or are toiling sharply reduced hours.
Only Congress can hand cold hard cash to consumers and businesses to tide them over until the outbreak starts easing, perhaps in a couple of months.
“We need a very large package that provides cash to households and particularly, small businesses,” says Mark Zandi, chief economist of Moody’s Analyticss.
Wanted: $600B stimulus
Zandi says the virus will ultimately cost the economy $600 billion and shave 3 percentage points of gross domestic product, causing a contraction in output during the first half of the year. As a result, he says a stimulus of at least that size is needed to limit the damage and keep the economy afloat.
The House late Friday passed a bill that helps Americans affected by the pandemic, expanding paid sick leave and unemployment benefits and increasing the share of Medicaid funding that the federal government sends to states.
White House senior economic advisor Larry Kudlow said Monday those and other measures proposed by President Trump – such as deferring federal student loan interest – will cost $400 billion and said the administration is prepared to double that to $800 billion.
Yet some economists question whether the administration’s proposed measures will be most effective at jolting a slumbering economy. For example, Kudlow said the White House wants to temporally cut payroll taxes for working Americans.
“The payroll tax holiday is a serious proposal, a very serious proposal,” Kudlow told reporters, though Republicans and Democrats in Congress have reacted coolly to the idea..
Jay Shambaugh, director of the Brookings Institution’s Hamilton Project, says a payroll tax cut wouldn’t help the unemployed and would give more money to high-income households who need it less since it’s based on a percentage of income. It also would dribble out over time as workers get their paychecks.
Plus, Zandi says, “it’s peanuts, maybe 30, 40 or 50 dollars per paycheck.”
$1,000 check for every worker
Instead both Shambaugh and Zandi suggest the government should send $1,000 checks to all workers who pay payrroll taxes at a cost of $155 billion. Low-income employees, who spend more of their paychecks, would benefit most. And it would help Americans who are still working but at reduced hours.
To be sure, Americans are spending much less since they’re going out less or not at all. But Shambaugh says, “They’ll use it to make rent payments, buy food. It’s not going to make them go on a shopping spree.”
Says Zandi, “They’ll spend it, no doubt about it,” on things like medical supplies. “They’ll buy online.”
Kudlow also said the administrations is considering providing financial aid to battered airlines.
“We don’t see the airlines failing, but if they get into a cash crunch we’re going to try to help them. He said he didn’t like the term, “bailout,” referring to it as a short-term liquidity problem.
Cancel payroll taxes
The U.S. Chamber of Commerce Monday advocated canceling all payroll taxes employers pay from March to May at a cost of $300 billion.
“The funds would be used by employers to pay employees” so they don’t have to lay off workers, chamber Executive Vice President Neil Bradley said on a conference call with reporters
Zandi and Shambaugh, however, say airlines and other large companies have the cash and lines of credit to weather the current turmoil. A stimulus, they say, would be better directed to small businesses.
Zandi recommends a rebate to small firms that would reimburse them for the payroll tax payments they’ve made so far this year. Those ordered by state or local governments to temporarily shut down would receive twice what they’ve paid so far.
Small business also should be able to put off paying taxes until September.
Moody’s also recommends:
• Sending a $1,000 check to Social Security recipients as well as workers.
•Paying Americans for all diagnosis and care related to the virus.
• Allowing homeowners receiving unemployment insurance to also receive forbearance on their mortgage payments.
While Moody’s proposals would cost $600 billion, they would result in an $825 billion boost to the economy. That wouldn’t prevent a recession, Zandi says, but it would lead to a swift and strong recovery.
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.
