For people who hope to retire someday, maybe in their mid-90s, the plummeting stock market is hard to look at. But the market is sending a signal that the government should heed — not thwart.
The biggest problem with avoiding a deep economic hit from coronavirus — other than the tragic fact of the virus itself — is that the economy is already so hyper-stimulated that it is going to be really hard to induce people to spend their way out of this one.
Last week, with the Dow Jones Industrial Average down 2,500 points in a month, the Federal Reserve tried to go big and bold. It made an “emergency” cut to interest rates, the first time since the financial crisis a decade ago.
The half-a-point cut brought the rates at which banks can borrow from each other down to 1.25 percent, a rate that would indicate an economy already in deep recession and in need of a rescue.
But it didn’t “work,” in that the stock market continued to fall. By the end of the week, the Dow had shed another 1,200 points.
Despite a healthy jobs report for the month of February, with more than 270,000 people hired, the stock market is telling us something you probably already figured out yourself: Unless you own a hand-sanitizer company, contagious disease isn’t good for the economy.
The first part of why the rate cut didn’t work is obvious. A cut in interest rates is supposed to spur companies and people to borrow money and spend it. Mortgage rates are now at their lowest rate ever, just above 3 percent. But companies aren’t going to make big investments when their supply chains are broken. Drugmakers and toymakers alike can’t sell to the American consumer when Chinese workers can’t get to work to make the drugs and the toys.
An interest-rate cut isn’t going to spur you to take that spontaneous trip to Italy right now. And if you are worried that the virus will cause you to miss work, you are unlikely to buy a house.
The other reason is less obvious — and, if the virus does keep people quarantining themselves long term, it will be a bigger problem. It’s hard to stimulate this economy back to health, because it’s been overstimulated for more than 10 years.
Rate cuts to induce people and companies to borrow more? American families have already maxed out their credit cards.
This isn’t a metaphor for something; they have literally maxed out their credit cards, owing $4.1 trillion on consumer debt other than mortgages, up from $3.2 trillion in 2008 (after adjusting for inflation). Even before coronavirus, delinquency rates on this type of debt were inching up.
OK, well, what about fiscal stimulus? That is, instead of cutting rates to induce people to borrow more, the government could do that borrowing itself, and then give people the money directly. Last week, President Trump suggested a payroll-tax cut, which is exactly that.
With a trillion-dollar annual budget deficit, though, long before the virus hit, the government is already doing that, too, and has been for years.
If coronavirus keeps planes grounded and trains empty for much longer, the feds will have to take measures beyond the $8.3 billion Congress just approved for direct disease-control spending.
Travel-industry workers will be without work and thus will need unemployment insurance, as will people who work on assembly lines that are missing imported parts (and customers).
And Congress will have to make tough calls: Should airline shareholders, or taxpayers, take the hit from a disaster that is out of the airline industry’s control? State and local governments, too, will lose tax revenues and face budget cuts, when many have barely recovered from the 2008 recession.
But it’s going to be hard to get big results by ramping up spending in a real emergency, when both Congress and the Fed, through their loose interest-rate and deficit-spending policies, have been acting like it’s an emergency for more than a decade.
Will we see a $2 trillion budget deficit — or interest rates at negative six? Long before coronavirus, Washington had gone way beyond what anyone would consider normal.
The Fed and Congress, in that sense, are like parents stuck with a house full of quarantined kids to feed. When they open the cupboard for the emergency food stash, they are surprised to find only an empty bottle of whiskey.
Nicole Gelinas is a contributing editor of City Journal. Twitter: @NicoleGelinas
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.
