The current economic expansion shows no obvious signs of stalling. Economists in general expect 2020 will see another year of growth, even if not quite so robust as in 2019. That should usher in a decent year for the stock market, especially as presidential election years tend to be upbeat.
But while a recession appears to be at least a year away, things could unravel quickly.
“In spite of record-low unemployment and continued steady, if unspectacular growth, the economy seems fragile,” Lee McPheters, an economics professor at Arizona State University, said.
Here are some contrarian, negative signs — perhaps even bubbles — to beware amid what is still broadly considered to be a generally upbeat backdrop.
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Maxed-out consumers
Consumer spending drives more than two-thirds of the economy, so if average Americans are buoyant, that’s a good sign. That describes the current situation, with continuing high consumer-sentiment readings and solid holiday-seasons sales.
But there are pockets of weakness. “Personal debt is where the heart of my concern lies,” Jonathan Smoke, chief economist for Cox Enterprises in Atlanta, said.
Many low-income individuals, those with poor credit and younger adults are grappling to make ends meet even after a decade of economic growth. Renters are getting squeezed by higher rents, and auto-loan delinquencies and defaults are ticking higher — which partly explains sluggish new vehicle-sales.
Auto-loan delinquencies for subprime borrowers already are at a higher level than at any point leading up to and including the Great Recession, Smoke said. Rising delinquencies and defaults could lead to more personal bankruptcies, he added.
Smoke also sees a lot of Americans going overboard on holiday spending this season. Many will require income-tax refunds early next year to dig out of their holes, he said.
Foreign trade and a global slowdown
The threat of disruptive trade disputes has eased in recent weeks, with the U.S. House of Representatives passage of a new trade agreement with Mexico and Canada, and with word that the White House and China have agreed to ease tariffs.
Still, in a survey released in December by the Blue Chip Economic Indicators newsletter, member economists ranked trade disputes with China as easily the most worrisome peril, ahead of weaker corporate profits, a general global slowdown and other threats.
Though exports and imports are less vital to the U.S. than they are to China, Europe and most other nations, trade friction and slower global growth pose risks here too. That’s partly owning to broadening of the global supply chain, McPheters said.
Energy prices, especially for oil, are another background threat, even if not all that apparent at the moment.
“Global geopolitical conflicts or even a natural disaster such as a Middle East earthquake could raise the price of energy and trigger recession,” McPheters said. “There are no signs of spiking oil prices, but external shocks are always a risk.”
General business uncertainty
Business investment has been soft lately, and unease among top executives could be a factor. Indicators that gauge CEO confidence and sentiment among business leaders have been declining. McPheters considers uncertainty as to the likely cause of that.
Sources of uncertainty include the 2020 presidential election, Brexit and possible tax hikes if the election yields a change in the White House or Congress, he said. Leading Democrat presidential contenders have called for an array of higher taxes, including on corporate income — a scenario that could spook investors and executives.
“Anything that contributes to even more uncertainty about policy, politics or geopolitical conditions would tend to dampen spending and growth,” McPheters said. He also sees the potential for external shocks from natural disasters such as droughts, fires, hurricanes, earthquakes and major storms.
Smoke cited weak auto and aircraft sales as signs of business sluggishness, though he considers recent strong construction numbers and buoyant sentiment among homebuilders as favorable.
“As long as housing is positive, it’s very difficult to envision the U.S. going into recession,” he said.
Threat of higher interest rates
Interest rates have been subdued for a long time, but any spike could pressure economic growth, both for businesses and consumers.
Jack Ablin, chief investment officer at Cresset Capital Management in Chicago, worries about a possible interest-rate impact on what he considers bloated corporate debt levels. Excluding IOUs issued by banks and insurance companies in the normal course of their operations, corporate debt as a percentage of GDP is near an all-time high, he said.
Also worrisome, a large percentage of that corporate debt carries adjustable rather than fixed interest rates. That could translate to higher borrowing costs for businesses if rates were to spike.
“We are highly levered, and a lot of that leverage is floating rate,” Ablin said. He considers current lofty levels of corporate debt to be a “distortion” that could hurt profits, undermine the stock market and slow the economy.
Rising rates also could pressure many consumers, including those with growing balances on high-interest credit cards, Smoke noted.
Growth still probable, though
To reiterate, the consensus among economists, including those quoted above, is that 2020 will be a decent if slowing year for the economy.
In November, 53 forecasters surveyed by the National Association for Business Economics predicted growth of 1.8% in 2020, down from an expected 2.3% in 2019, with recession odds rising from 5% currently to 43% by the end of 2020.
Against this backdrop of slowing growth, negative developments could be enough to tip the scales — and they’re often difficult to foresee. In 2007, for example, Federal Reserve officials were forecasting a solid year of economic growth, but the economy then spiraled into recession.
“The moral is that even top economists with the full resources of the Federal Reserve System can be wrong,” said McPheters.
Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.
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.
