Pia Bouman’s monthly revenue as a longtime ballet teacher in Toronto’s west end has not changed very much in the past few weeks even though the local economy is progressively moving into the deeper stages of reopening.
Physical distancing rules means that in-person attendance at her non-profit Pia Bouman School of Ballet and Creative Movement has to be limited to a maximum of three or four students per class, a third of the class size she used to have in pre-pandemic times.
After each class, a thorough cleaning and sanitizing process begins. Despite the precautions, demand for in-person classes has remained low, with just five classes per week.
“The landlord has not given us leave yet,” said Bouman, who has not paid rent since her revenue dried up in late March. “But if we lose this school because of rent arrears, the ramifications would be huge for this community: there are hardly any dance spaces in the west end of Toronto.”
Bouman’s dance school is one of many small businesses that are continuing to struggle despite nationwide rules that now allow for most indoor activities to resume and for gathering in relatively large groups (albeit at a distance).
The problems vary according to business
and are complex in nature, but include potential landlord troubles, customer comfort levels and a looming Canadian winter that will shut down patio sales.
Bouman’s landlord, for example, has not yet chosen to apply to the Canada Emergency Commercial Rent Assistance (CECRA) program, the federal subsidy for landlords, meaning she could be served an eviction notice at any point.
On top of that, adhering to physical distancing rules means that she can’t take in as many students at a time, even if they didn’t still have trepidation about sweating it out in an indoor space.
At the height of the pandemic in early April, just 21 per cent of small businesses were open, according to data from the Canadian Federation of Independent Businesses. That number has tripled as of Aug. 5, but approximately 75 per cent of small businesses also report that they are making less revenue than they would have at this time of the year, and 26 per cent said they are making less than half what they used to.
“There are people out and about, in parks, walking, biking, cycling, but not many are actually coming in and purchasing things, especially if it requires being in an indoor space for a long time,” said a sales manager at a downtown Toronto branch of clothing store Zara Inc. “Usually, we’d be packed for end-of-summer sales.”
A few units away from Bouman, the owner of Mosaic Yoga, Morgan Cowie, is facing a similar problem: her yoga studio is open for classes, but business has been bad.
“Revenue is dismal right now. I am working solo, seven days a week, and I’m just trying to somehow keep things ticking along, but it’s really grim right now,” Cowie said.
Things are not much different since the Financial Post
talked to Cowie
back in March. Mosaic Yoga, at that point, had just refunded most of its membership fees, and introduced Zoom classes.
“One of the problems for us is that people are just not comfortable wearing masks or shields indoors yet, and I think that behavioural modification is hard for people,” she said. “I’m also worried as to what will happen when CERB (Canada Emergency Response Benefit) runs out, but, look, August has always been a slow month so maybe September will be better as people get back to the routine of school.”
Many of the federal government’s income support measures have provided a lifeline for small businesses to this point, but there’s a degree of trepidation among some owners as to what will happen when the programs are modified, or stopped altogether.
For example, Cowie has been personally surviving on CERB. Her business was not eligible for the government’s wage subsidy program so she had to let all her staff go and does not plan to hire most of them back until business picks up.
Almost 40 per cent of business owners with up to four employees have used CERB, according to CFIB data, and that program is scheduled to end
on Oct. 3.
The self-employed who have been paying into employment insurance will be able to access some benefits, but the payout rate will depend on their employment history and the extent of their contributions.
In Edmonton, Justine Barber, the owner of Poppy Barley, a clothes, shoes and accessories store, said she is extremely concerned about the end of government benefits.
“We have really been supported by the government, especially by the wage subsidy,” she said. “The revised wage subsidy, which will go on until the end of the year, will give us much less than what we’re getting now.”
The federal government’s modified wage subsidy program is designed to give out a smaller subsidy to companies whose revenues are improving. Those that need the help most, however, could get a wage subsidy as high as 85 per cent, up from the 75 per cent that can be currently claimed.
On most measures,
Poppy Barley is doing okay
. July 2020 revenue, according to Barber, was 90 per cent of that in July 2019, but its in-store sales at two mall locations in Edmonton and Calgary are 50 per cent of what they normally are.
“It’ll be a down year overall, we’re projecting about 80 per cent of revenue compared to last year,” she said.
Margins are so thin for independent retailers such as Poppy Barley that even the slightest increase in costs can push them into uncertain territory.
“We’re still waiting on our landlord to receive CECRA, we are really banking on that,” Barber said.
Both the retail and food sectors have somewhat recovered since provincial economies began reopening. The latest employment data from Statistics Canada showed that food service jobs rose by 100,500 in July, although that number was still 300,000 fewer than what it was in February.
But the recovery could be short-lived since many restaurants are relying on patio sales.
Charles Khabouth, chief executive of Ink Entertainment, one of the country’s largest restaurant and bar owners, said 90 per cent of his company’s current revenue is coming from outdoor dining.
Back in April, Khabouth had
shut down all 18 of his bars and restaurants
in Toronto and Montreal, leaving only one coffee shop open for takeout. But he said business has been roaring since patios were allowed to open in late June.
“Traffic outdoors has been overwhelming, sales are skyrocketing, people are so happy to be out,” he said. “We have under 100 cases a day in Ontario, you’d be a very unlucky person to catch this virus.”
Cabana Pool Bar, Ink’s flagship day club in downtown Toronto, has now been converted into a restaurant — one that Khabouth said is seating about 1,000 people per day.
His plan is to scoop up as much revenue as possible in the summer months, while continuing to rely on the government’s wage subsidy program to offset costs for as long as the program continues.
Meanwhile, Khabouth is hopeful that infection rates will stay low as more people get used to wearing masks.
“Look, I see this (outdoor dining) as a runway for people getting comfortable being around other people,” he said. “We certainly won’t be able to do the volume that we can by having people on a patio, but I’m hopeful that once it gets cold, people will still remain comfortable coming to restaurants and bars.”
Copyright Postmedia Network Inc., 2020
Trump’s Biggest Economic Legacy Isn’t About the Numbers – The New York Times
BETHLEHEM, Pa. — To understand how much President Trump has altered the conversation around the economy, just listen to Bruce Haines, who spent decades as an executive at U.S. Steel before becoming a managing partner of the elegant Historic Hotel Bethlehem.
The steel mills that still dominate Bethlehem’s skyline have long been empty. And now, so are the tables in the Tap Room, the hotel’s restaurant, a sign of the economic hardship caused by the coronavirus pandemic. “It’s been very difficult,” Mr. Haines said.
The president’s management of the pandemic is a prime reason many voters cite for backing his opponent. But Mr. Haines, who lives in a swing county in a swing state, is struck most by a different aspect of Mr. Trump’s record.
“I spent 35 years in the steel business and I can tell you unfair trade deals were done by Republicans and Democrats,” Mr. Haines said. Both parties, he complained, had given up on manufacturing — once a wellspring of stable middle-class jobs. “Trump has been the savior of American industry. He got it. He’s the only one.”
In perhaps the greatest reversal of fortune of the Trump presidency, a microscopically tiny virus upended the outsize economic legacy that Mr. Trump had planned to run on for re-election. Instead of record-low unemployment rates, supercharged confidence levels and broad-based gains in personal income, Mr. Trump will end his term with rising poverty, wounded growth and a higher jobless rate than when he took office.
Still, despite one of the worst years in recent American history, the issue on which Mr. Trump gets his highest approval ratings remains the economy. It points to the resilience of his reputation as a savvy businessman and hard-nosed negotiator. And it is evidence that his most enduring economic legacy may not rest in any statistical almanac, but in how much he has shifted the conversation around the economy.
Long before Mr. Trump appeared on the political stage, powerful forces were reshaping the economy and inciting deep-rooted anxieties about secure middle-income jobs and America’s economic pre-eminence in the world. Mr. Trump recognized, stoked and channeled those currents in ways that are likely to persist whether he wins or loses the election.
By ignoring economic and political orthodoxies, he at times successfully married seemingly contradictory or inconsistent positions to win over both hard-core capitalists and the working class. There would be large tax breaks and deregulation for business owners and investors, and trade protection and aid for manufacturers, miners and farmers.
In the process, he scrambled party positions on key issues like immigration and globalization, and helped topple sacred verities about government debt. He took a Republican Party that preached free trade, low spending and debt reduction and transformed it into one that picked trade wars even with allies, ran up record-level peacetime deficits and shielded critical social programs from cuts.
“He completely moved the Republican Party away from reducing Social Security and Medicare spending,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.
On immigration, Mr. Trump remade the political landscape in a different way. He has accused immigrants of stealing jobs or committing crimes and — as he did in Thursday night’s debate — continued to disparage their intelligence. In doing so, he rallied hard-line sentiments that could be found in each party and turned them into a mostly Republican cri de coeur.
The Democrats changed in turn. Former Vice President Joseph R. Biden Jr. has positioned himself as the champion of immigrants, pledging to reverse Mr. Trump’s most restrictive policies, while rejecting more radical proposals like eliminating the Immigration and Customs Enforcement agency.
He has also been pushed to finesse his position on fracking and the oil industry, promising not to ban the controversial drilling method on private lands, and trying — with mixed success — to walk back comments he had made during the presidential debate about transitioning away from fossil fuels.
Shifts on trade were more momentous. Mr. Biden and other party leaders who had once promoted the benefits of globalization found themselves playing defense against a Republican who outflanked them on issues like industrial flight and foreign competition. They responded by embracing elements of protectionism that they had previously abandoned.
No matter who spends the next four years in the White House, economic policy is likely to pay more attention to American jobs and industries threatened by China and other foreign competition and less attention to worries about deficits caused by government efforts to stimulate the economy.
The reshuffling is clear to Charles Jefferson, the managing owner of Montage Mountain Ski Resort near Scranton, Pa.
“Those were not conversations we were having five years ago,” he said. “The exodus of manufacturing jobs, that was considered a fait accompli.”
Mr. Jefferson, 55, grew up in North Philadelphia in a blue-collar union family and remembers the hemorrhaging of jobs that many Democratic leaders said was unstoppable in a globalized world — even though such positions were deeply unpopular with many rank-and-file Democrats.
Manufacturing revived after bottoming out during the Great Recession but floundered during President Barack Obama’s second term. Mr. Jefferson, who said he voted for Mr. Obama, supported Mr. Trump in 2016. He plans to do so again.
The sector still represents a relatively small slice of the economy, accounting for 11 percent of the country’s total output and employing less than 9 percent of American workers. But Mr. Trump has been a relentless cheerleader. While he often took credit for manufacturing jobs at companies like General Motors and Foxconn that later disappeared or never materialized, the pace of hiring in the sector sped up considerably in 2018 before stalling out last year.
As a result, in this election, unlike the last, the significance of manufacturing and the need for a more skeptical approach to free trade are not contested.
Mr. Biden, after decades of supporting trade pacts, is now running on a “made in all of America” program that promises to “use full power of the federal government to bolster American industrial and technological strength.” He has also vowed to use the tax code to encourage businesses to keep or create jobs on American soil.
Even voters who don’t particularly like Mr. Trump credit him with re-energizing the U.S. economy.
Walter Dealtrey Jr., who runs a tire service, sales and retreading business in Bethlehem that his father started 65 years ago, said he voted for Mr. Trump in 2016, but he was never a big fan of the president.
“He talks too much,” said Mr. Dealtrey, who’s been around long enough to distinguish a new Goodyear or Michelin tire by its smell. “And his tone is terrible.” A year ago, he had considered the possibility of supporting a moderate Democrat like Mr. Biden or Senator Amy Klobuchar of Minnesota.
But with Election Day just over a week away, Mr. Dealtrey plans to once again support the president. Even after a few unnervingly slow months in the spring and some layoffs among the 960 people he employed at his company, Service Tire Truck Centers, he stills trusts Mr. Trump on the economy.
Mr. Dealtrey talked as he walked around stacks of giant tires that towered above his own six-foot frame, a Stonehenge-size monument to wheeled transport. He likes the president’s focus on “big manufacturing” and the way he “instills confidence in businesses to invest in this country.”
Just how much responsibility Mr. Trump deserves for reframing some key economic issues is up for debate. Frustration about job losses in the United States has been brewing for decades; the parties were diverging on immigration; and antagonism toward China over trade practices, suspicions of technology theft and its authoritarian tactics extends beyond the United States.
“I don’t think he really has pushed the boundaries of any of those policy issues beyond where they already were,” said Mr. Strain of the American Enterprise Institute.
Similarly, Jason Furman, a chairman of the Council of Economic Advisers during the Obama administration, argues that Mr. Trump was pushed along by the same trends and forces that spurred his supporters. And on some issues, like immigration, he caused public opinion to move in the opposite direction.
In the end, it may turn out that the president’s most significant impact on economic policy is not one that he intended: overturning the conventional wisdom about the impact of government deficits.
By simultaneously pursuing steep tax cuts for businesses and wealthy individuals, raising military spending and ruling out Medicare and Social Security reductions, Mr. Trump presided over unprecedented trillion-dollar deficits. Emergency pandemic relief added to the bill. Such sums were supposed to cause interest rates and inflation to spike and crowd out private investment. They didn’t.
“Trump has done a lot to legitimize deficit spending,” Mr. Furman said.
Mr. Furman is one of a growing circle of economists and bankers who have called for Washington to let go of its debt obsession. Investing in infrastructure, health care, education and job creation are worth borrowing for, they argue, particularly in an era of low interest rates.
That doesn’t mean the issue has disappeared. Republicans will undoubtedly oppose deficits resulting from proposals put forward by a Democratic White House — and vice versa. But warnings about the calamitous consequences of federal borrowing are unlikely to have the same resonance as before the Trump presidency.
Back in his office, Mr. Dealtrey remembers how disturbed he once was about the size of the deficit. “I used to care about my kids and grandkids being stuck with it,” he said, leaning back in his chair. “But nobody cares anymore.”
“Maybe I don’t care anymore,” he said, momentarily surprised at his own words. “We’ve got bigger problems than that.”
How Trump’s and Biden’s Tax Plans Will Help or Hurt the Economy’s Recovery – Barron's
While political rivals are forecasting economic devastation if former Vice President Joe Biden were to raise taxes on the wealthy and corporations, many economists and tax analysts who have modeled outcomes have a different take.
The net effect of Biden’s proposals, when analyzed independently of spending and economic policies, would be negative economic growth ranging from -0.16% to -1.62% over the next 10 years, according to analyses by the American Enterprise Institute and Tax Foundation.
Slowed growth is attributed to higher taxes on the very wealthy, and major changes to businesses taxation, including an increase in the corporate tax rate from 21% to 28%, a doubling of the tax rate on certain income earned by foreign subsidiaries of U.S. corporations, and elimination of a 20% deduction for owners of pass-through entities with income of more than $400,000.
But when factoring in spending and economic plans—including those for trade, immigration, education, housing, health care, and other policies—the outlook varies by scenario.
An analysis by Moody’s Analytics finds that if Biden wins and Democrats win a majority in both the Senate and the House and enact his plans, average annual economic growth would be 2.9% and average annual wage growth would be 0.9% through 2030.
Moody’s finds that some 18.6 million jobs would be created over Biden’s four-year term, and full employment would be reached in the second half of 2022. Full employment is typically defined as an unemployment rate under 5%. It is about 8% today.
In contrast, if President Donald Trump wins the election and Republicans win the majority in both houses of Congress, the economic picture dims: 10-year economic growth would average 2.4%, wages would grow by 0.7% over a decade, 11.2 million jobs would be created over four years, and full employment would be reached in 2024.
If Congress maintains its split majority, with Republicans dominating the Senate and the Democrats in the House, the economic outcomes will be similar whether Biden’s or Trump’s tax policies are in effect—though somewhat more favorable under Biden’s presidency, according to Moody’s.
Analyses that compare the two candidates’ plans are handicapped by a lack of detail issued by Trump. For example, while he has stated that he supports a capital-gains tax cut, none of the analyses factor this in.
Generally speaking, however, capital-gains tax cuts don’t typically help the economy, says Garrett Watson, a senior policy analyst at the Tax Foundation. “There is no evidence that capital-gains tax cuts are growth-enhancing.”
Fall in Crude Oil Prices Puts USD/CAD on the Rise
A mid-October decline in crude oil prices produced a bleaker outlook for the immediate future of the Canadian dollar (CAD), which enabled the US dollar (USD) to get back on the front foot in the USD/CAD currency pair.
On October 15, crude oil prices shed over 3.5% of their value in a single day. The CAD is regarded as one of the world’s leading commodity currencies, such is the Canadian economy’s reliance on the money that it generates from exporting key goods.
Any decline in oil prices is liable to weaken the CAD, which thereby strengthens the USD’s position in comparison to the loonie. That was the case in March 2020, where oil prices plummeted to a four-year low and the USD/CAD rose to its highest level since May 2017.
Neither oil prices nor the USD/CAD currency pair behaved so dramatically in mid-October, but the general trends were the same. Experts have expressed their concerns about the future of oil prices in the coming months, so there may be more scope for the US dollar to make gains against its Canadian counterpart.
An otherwise strong year for CAD
While the USD’s position as a safe haven has proven reassuring to traders at several junctures throughout the year, the overarching narrative in 2020 for the USD/CAD currency pair is one of Canadian resilience.
USD/CAD rose by approximately 2% on June 12, with that single-day increase the consequence of the US Federal Reserve taking the investing community by surprise with its indication that interest rates would remain low for the next couple of years. That sent markets scrambling, with oil prices also falling to further weaken the CAD’s position.
Yet that was a fleeting moment of strength for the USD, with the CAD swiftly recovering its losses against the greenback. From June 12 to the start of September, the USD/CAD pair slumped by approximately 4.4%.
That saw its June mark of 1.3638 traded for prices in the region of 1.30 as September began. This is an indication of the strength of the CAD, as fewer Canadian dollars were required to purchase one US dollar.
That may not seem like a significant drop, given that the USD/EUR retracted by around 5.5% and the USD/GBP shrunk by around 5.9% in the same time period.
However, the USD/CAD currency pair is not one that is known for its volatility. This can be observed through the margin requirements put in place for forex brokers in Canada. Margin requirements contribute to Canada’s strict regulatory environment for currency trading. The margin requirement determines the percentage of their capital that a trader must put forward to open a new position on a market, with a higher margin percentage necessitating more funds upfront.
The reason that margin requirement is a good indication of a currency pair’s traditional volatility is that the pairs more prone to fluctuations have higher percentages. For example, the notoriously unpredictable pair of the South African rand and the Japanese yen (ZAR/JPY) usually comes with a margin requirement of around 29%, whereas the USD/CAD pair has a much more conservative 2% capital requirement for traders seeking to open up a position.
This makes the stretch between June and September for the USD/CAD currency pair particularly notable. The USD clawed back a small proportion of its losses in September, before almost retreating into the 1.31 region. The USD/CAD had not hovered around the 1.30/1.31 mark since January 2020, a testament to the CAD’s resurgence.
Oil concerns to dampen CAD optimism
The news of crude oil’s price decline gave the USD a platform to bounce back, with the USD/CAD ending October 16 at the 1.3225 level. Further gains are likely to be predicated on the long-term forecast for oil prices, with any bleak outlook for the commodity certain to be bad news for the Canadian dollar and the nation’s wider economy.
Other factors inevitably influence the USD/CAD currency pair, given the countries’ heavy trade links and geographical proximity. As demonstrated by that shift in momentum on June 12, the policies announced by either the Federal Reserve or the Bank of Canada can influence market sentiment.
General politics can also be significant. The last few months of 2020 for the USD/CAD are likely to be shaped by the outcome and immediate aftermath of the US presidential election, although this is not a phenomenon unique to the United States and the Canadian economy.
Markets all over the world will be affected by the victor’s presidential vision for the country, with their new social and fiscal policies having the potential to either instill confidence in the American economy or place the long-term future of the US dollar in jeopardy.
Given the US dollar’s prevalence all over the world, as a peg for some currencies and as the central part of dollarized economies, this promises to be an important close to the year. However, crude oil prices may still prove to be the dominant factor in shaping the USD/CAD currency pair.
The International Energy Agency’s October report is grim reading for commodity currencies. The IEA calls the outlook ‘fragile’, raising serious concerns about the long-term prospects for growth in oil demand. The IEA anticipates a stock draw of 4 million barrels per day in the fourth quarter of the year, although this statistic should be caveated with the acknowledgement that these figures are coming off the back of record-high levels.
Yet the IEA ends its October report with the declaration that oil producers have little cause for optimism in the long term. At the start of 2020, some experts were predicting that oil prices would not drop below $50 per barrel (bbl) all year. Now, the IEA suggests that the projected curve for oil prices will not reach the $50bbl mark until 2023.
While markets will eventually adapt to these new oil price projections, Canada’s reliance on commodities makes it difficult to foresee any substantial immediate gains for the CAD against the USD. The USD/CAD currency pair may have moved in Canada’s favour for much of the year, but crude oil concerns may provoke momentum in the opposite direction.
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