Inflation is cooling. Consumers are still spending. And hiring is slowing — but not collapsing. That’s why Moody’s Analytics chief economist Mark Zandi is increasingly confident that the American economy will — narrowly — escape a recession.
“It’s going to be a struggle. It’s going to feel uncomfortable. But I think we are going to thread the needle,” Zandi told CNN Business in a phone interview earlier this week.
Zandi, whose forecasts are often cited by the White House, pointed to recent economic and market indicators that suggest the economy is not falling off a cliff despite widespread fears of a recession.
“The data over the last couple of months have been better than I would have thought. None of the financial market indicators suggest we have a recession dead ahead,” Zandi said.
And in a big positive for inflation-weary consumers, gas prices have plunged. The national average for regular gas is now below where it was when Russia invaded Ukraine and down sharply from the record high in June.
“My baseline is still no recession. That has not changed. But I do feel more confident than I did a few months ago,” said Zandi. “Inflation is moderating. Oil prices are stable to down. Employment growth is slowing. Layoffs are normalizing.”
Manufacturing stumbles, layoffs increase
Of course, there remains a great deal of uncertainty about what lies ahead and there are many reasons to be concerned about a potential downturn — including the most aggressive interest rate hikes from the Federal Reserve in decades.
Zandi said he wouldn’t argue with those who forecast a recession, conceding it’s going to be a “close” call.
A slew of major companies have announced layoffs of more than 1,000 jobs apiece in recent days, including AMC Networks, DoorDash and crypto exchange Kraken. That’s on top of mass layoffs that have wiped out tens of thousands of jobs in the tech sector, including major cuts at Amazon, Twitter and Facebook owner Meta.
Factories are also coming under significant pressure. A survey released Thursday by the Institute for Supply Management found that manufacturing activity contracted in November for the first time since May 2020.
“Overall, things are worsening,” one executive from a maker of electrical equipment, appliances and components said in the ISM survey. “Housing starts are down. We’re doing well against our competitors, but the industry overall is down. We’re sitting on cash (that is) tied up in inventory.”
‘Mild’ recession still a risk
Some business leaders are warning a downturn is likely still in the cards.
In a report on Monday, S&P Global Ratings said just one of the nine leading economic indicators it tracks was in positive territory through October. S&P reiterated it expects the US economy to fall into recession next year, though it expects a “mild” recession in line with the 1969-1970 downturn. S&P forecasts peak-to-trough US GDP will decline by just 0.8%.
Zandi said he thinks all of these recession fears could end up working to the economy’s advantage by discouraging risky behavior, forcing businesses to keep cash on hand and persuading officials in Washington to make prudent decisions.
“I bet if we weren’t worried about a recession, the president wouldn’t have been so quick to go to Congress,” Zandi said. “Everyone is on high alert and very cautious. The fact we are so nervous about a recession makes it less likely something will go wrong.”
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.
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.
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.
