Economy

Who Will Pick Up The Economic Slack? – Forbes

Published

4 years ago

February 15, 2021

Just a few days ago, the Commerce Department released figures on new business formation, and they are strikingly upbeat. They say a lot about how this pandemic has played out economically and suggest that a powerful recovery lies ahead but one filled with tremendous business and labor turnover.

The statistical release indicates that in last year’s fourth quarter some 1,115,984 new businesses of all sizes formed in the United States. Of these, some 373,740 are likely to hire new employees, what the department refers to as “high-propensity” startups. These fourth quarter figures were down sharply from the third quarter, 28.5% for total new businesses and 30.5% for the high-propensity sort. This all seems reasonable. The summer quarter enjoyed a partial economic re-opening, while the last quarter saw renewed lockdowns and quarantines. What is impressive is that even the reduced fourth quarter activity was some 30% above 2020’s first quarter, which was largely free of the pandemic’s economic effects. Still more telling, those fourth quarter figures were about the same amount above levels of business formation in 2018 and 2019. If this were not compelling enough evidence that business generally is gearing up to come back from the pandemic strictures, preliminary figures for January show that new business formation in that month alone amounted to 492,133, up 42.6% from December, and high-propensity business formation came to 164,691, up 41.2% from December.

This pattern should engender optimism about the economy as it emerges the constraints on business activity the authorities have imposed in response to the pandemic. The higher-than-average level of business formation says clearly that business is eager to fill the gap left by the unavoidable bankruptcies and closures created by the economic strictures. Because of the vagaries of bankruptcy law, many of those forming news businesses are likely the same people whose businesses failed during the lockdowns and quarantines. They are leaving their creditors holding the bag, so to speak, while they start up fresh with new capital. Others behind these new startups are new entrepreneurs ready to step in to take over where others have failed. Either way, the message is clear. Plenty are willing, indeed eager to fill the economy’s needs when it re-opens.

This unfolding pattern finds confirmation in the mix of employment numbers. On the surface, labor statistics appear to contradict each other. On the one hand, initial claims for unemployment insurance remain elevated, not as high as in April, to be sure, but much higher than historical averages. This news says that large numbers of people were losing their jobs. On the other hand, the Labor Department reported strong net employment growth between June and November, enough to recover more than half the jobs lost during the severe lockdowns of April and May. The business turnover just described makes sense of this seemingly contrary behavior. As old firms have gone out of business or downsized, they have laid off people who have naturally gone on to claim unemployment insurance. As new firms have formed, they have hired people, sometimes the same people who were laid off, especially if they are in part the same people who managed the failed concern. Though these workers then drop off the unemployment rolls, their original claim remains in the statistics. This kind of churning in business formation as well as hiring and firing keeps both net job creation and indicators of layoffs simultaneously higher than in more normal times.

The economy will no doubt suffer many imbalances as a legacy of this pandemic and the steps the authorities have taken to contain it. Many creditors, for instance, will face defaults even as they lend to other, newer firms coming on stream to take the place of those that failed. The pressures may ultimately cause many creditors to default themselves. Once the re-opening surge runs its course, some of these legacy debt problems may well impose financial imbalances on the economy that will cause trouble, perhaps even a recession. But for the time being, these reports indicate that the failed businesses are seeing rapid replacements so that the nation’s Main Streets as well as the avenues of its great cities may quickly free themselves from the empty store fronts and boarded up windows that have multiplied while the quarantines and lockdowns have remained in place.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

22 hours ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

23 hours ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

2 days ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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