It is probably no surprise that Republican infighting scuttled a stopgap measure on Friday in the House of Representatives, designed to avert a government shutdown on September 30.
That is the deadline to approve new budget legislation to fund the United States government over the next fiscal year — which starts on Sunday.
But with a faction of hardline Republicans refusing to pass any sort of legislation without massive cuts to discretionary funding, the country is now staring at a possible shutdown of all federal functions deemed non-essential.
Even those considered essential won’t get fully paid, said Justin Begley, an economist at Moody’s Analytics, although they will receive their full salaries once the shutdown is over.
“We’ve reached this point because political partisanship seems to be elevated,” Begley explained.
While the US Congress decides what is essential and what isn’t — the line is typically drawn at safety — no government funds means no government spending.
That could leave hundreds of thousands of federal workers without pay, and millions of citizens without access to programmes like nutrition assistance.
Depending on the length of the shutdown, the US economy overall could also worsen.
A two- to four-week shutdown is the most likely scenario, said Begley.
And while that would have some impact on the economy — economists differ over how bad the situation could get — there is also concern that the US’s credit rating could suffer, driving up interest rates for government loans.
Last month, Fitch Ratings downgraded US credit rating by one notch on the back of the debt ceiling crisis and political divisions. Earlier this week, Moody’s warned a shutdown would negatively affect the government’s credit: It currently lists the US as having a AAA rating, the highest possible.
US House Speaker Kevin McCarthy, a Republican, faces resistance to budget legislation from hardline members of his party [Jonathan Ernst/Reuters]
Loss to the economy
Around a quarter of the US gross domestic product is government expenditure. If that spending were “severely dented”, Begley said it would have all kinds of knock-on effects on investments and consumption, affecting the economy as a whole.
For every week the shutdown persists, there could be potential losses of 0.1 to 0.2 percentage points of quarterly economic growth, according to Jared Bernstein, chairman of the White House Council of Economic Advisers.
Economists at Goldman Sachs, meanwhile, put that number down to 0.2 percentage points for each week of shutdown.
In case of a four-week shutdown, Moody’s predicts a 0.4 percentage point reduction in the GDP, but that figure is not certain as there’s a compounding effect, Begley said, which could drive that number higher.
The worst-case scenario is a full quarter shutdown. That could cause a 2 percentage point reduction in GDP growth, Moody’s estimates.
“Lost hours, wages, productivity from federal government workers … will drag down the GDP,” said Begley.
While economists expect some recovery once back pay comes in for government employees, there will be a permanent loss of hours and wages from the roughly five million government contractors, slightly half of whom are expected to be impacted by the shutdown.
A long shutdown also means fewer small business loans and fewer companies listed on the stock market. Indeed, Gary Gensler, the chair of the US Securities and Exchange Commission, urged companies that were ready to list to do so before the shutdown: If nonessential government services are frozen, the process of reviewing companies to go public on the stock market will slow to a crawl.
All of that is on top of a second month of low consumer confidence in September.
Then there’s another scenario. If the shutdown lasts the entire quarter and hits January 1, the government will be forced to make an automatic one-percent cut in discretionary spending, giving the hardline Republicans at least some of what they want.
US Representative Andy Biggs from Arizona is among the far-right Republicans pushing for steep spending cuts [Jonathan Ernst/Reuters]
What are the possible scenarios going forward?
At the moment, the options to avoid a shutdown are dwindling.
Each year, Congress must pass 12 appropriations bills to keep the government running — but that process is unlikely to be completed before time runs out.
In lieu of that, Congress could instead push through a stopgap measure — called a “continuing resolution” or CR — to temporarily fund the government while it continues work on the appropriations bills.
But hardline Republicans have rejected the prospect of a short-term fix.
“CRs have only made the American economy worse off,” one of those congresspeople, Andy Biggs, wrote on social media.
While Friday’s stopgap measure in the House of Representatives shot down in a vote of 198 to 232, House Democrats are pinning their hopes on a separate bipartisan stopgap that could potentially arrive from the Senate.
It is unclear, though, whether House Speaker Kevin McCarthy — the leading Republican in the lower chamber — would introduce the Senate’s bill on the House floor.
Far-right Republicans have threatened to revoke his speakership if he does.
“It is becoming increasingly clear that Republicans will bear the brunt of the blame for the shutdown, which may lower the partisan walls between McCarthy and his allies and the Democrats in the House and Senate,” said Begley.
However, it remains unclear whether the scrutiny on Republicans will translate into effective action.
“The added pressure means that a shorter two- to three-week shutdown is still possible, but heightened intraparty tensions increases the risk that the shutdown becomes a bit more lengthy,” he added.
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.
