You’re not the only one confused about where the economy is going — the experts are too
Should Twitter employees turfed from their jobs by their new boss come looking for work in Canada? Friday’s stunning jobs numbers might make you think that was a good idea.
While the U.S. economy, where employment numbers were also released on Friday, created 261,000 jobs, Canada cranked out 108,000 — despite having only one tenth the U.S. population.
As the company’s self-designated “Chief Twit”, Elon Musk was engineering Twitter-wide employment devastation just as Canada was creating jobs.
Expect the unexpected
Musk wasn’t alone. Tech darlings including Amazon, Apple, Lyft and Stripe have announced layoffs and hiring freezes to prepare for a coming recession. In Canada, Hootsuite and Dapper Labs cut staff.
In her economic statement last week, Deputy Prime Minister Chrystia Freeland, this time wearing her finance minister’s hat, repeated her recent warnings that Canada must prepare for recession.
“Canada cannot avoid the global slowdown,” said Freeland, “but we will be ready.”
She also declared that Canada was strong and would get through any economic troubles in good shape; echoing former prime minister Wilfrid Laurier’s 1904 declaration the 20th century belonged to Canada, Freeland put dibs on the 21st.
Contradictory signals have become the rule rather than the exception as economists, businesses and political leaders struggle — and sometimes fail — to winkle out a pattern in today’s data to tell us a true story about the future. No wonder the rest of us have trouble doing it.
Friday’s huge job numbers showed how difficult predictions are, even for specialists. Not one of the economists polled by Bloomberg came close. Unemployment data is notoriously variable, and Tu Nguyen, who forecast that jobs would actually shrink, was not the only person to be shocked.
“Wow, we certainly did not expect this,” said Nguyen, an economist with the financial firm RSM Canada. “Despite all the talk about recession … we are certainly not in a recession right now if you look at the jobs numbers.”
Good for some bad for others
So are we getting a recession or not? People who are supposed to be in the know are still debating. The word stagflation keeps popping up, and last week U.S. billionaire Paul Singer warned of hyperinflation, a kind of price-growth-on-steroids that knocks an economy flat.
At more moderate ranges, a preference for inflation or rising interest rates, depends, like Freeland, on which hat you are wearing. Borrowers dislike rate hikes, while workers, shoppers and savers dislike inflation. But since many Canadians are all of those things, it is hard to choose.
For employers considering the need for layoffs, workers desperately trying to catch up with rising prices, for homeowners and market traders, the lack of clarity makes everything harder.
More jobs is generally good news for workers, and the Statistics Canada data showed wages were rising faster — now at a pace of 5.6 per cent. However, that’s still below current inflation, which is running at 6.9 per cent.
But the persistently strong economy signalled by employment data in both Canada and the U.S. seems to be warning us that inflation is not yet sinking back down to the two per cent target range.
Canada’s next inflation data is still just more than a week away, but last month’s surge in gasoline prices after previous monthly declines could push the consumer price index higher. In the U.S., the most recent inflation number — core inflation, the type with volatile things like gas taken out — has continued to rise.
If prices are going to remain on the upswing, it may not be surprising that on Friday Ontario education workers stood up to a provincial government that had ordered them back to work. Thirty years of tame inflation left employees complacent at first, but more are now grasping the economic principle that a wage increase below the rate of inflation is equivalent to repeated cuts in pay.
When the Bank of Canada’s Tiff Macklem hiked interest rates by “only” half a percentage point last time, some borrowers breathed a sigh of relief, hoping rate increases were coming to a halt.
But borrowers got a rude surprise when Jerome Powell at the U.S. Federal Reserve hiked rates by three quarters of per cent, a rate rise that will inevitably affect Canadian borrowers, too.
The difficulty of making predictions based on economic signals got a real-time demonstration last Wednesday as Federal Reserve chair Powell was speaking to reporters at his monetary policy news conference.
“I notice stocks and bonds are reacting positively to your announcement,” said one reporter. “Is that something you would have wanted to see?”
Powell responded that his intent was not to influence markets, but the world’s most influential central banker then made it clear that anyone who thought the Fed was about to take a break in hiking rates was mistaken.
“There is no sense that inflation is coming down,” he told the assembled reporters as well as the many market players who were listening in on the public feed. “It’s premature to discuss pausing, and it is not something we are thinking about.”
Markets retreated accordingly.
People in China are so worried about the economy they’re asking for divine intervention
China’s post-Covid reopening was supposed to be the stimulant that the world needed. But after an early burst of activity, growth in the world’s second largest economy appears to be stalling.
Disillusioned by the deteriorating economic outlook, young people are flooding to Buddhist and Taoist temples to pray for divine intervention in securing jobs, getting into good schools or becoming rich overnight.
Data released this week showed Chinese exports fell 7.5% in May from a year ago, much more than expected, as global demand waned. Factory activity contracted again last month, and youth unemployment stands at a record high.
Economic uncertainty has driven temple visits and tourism to new heights, according to analysts and travel websites.
“No school-going, no hard-working, only incense-burning” has been a popular hashtag on social media since March, referring to a growing trend among young people in China who escape a pressure-cooker society by going to temples to pray for luck.
“Incense-burning youth” has become the number one catchphrase in China’s tourism industry this year, according to a survey jointly conducted in April by Qunar.com, a travel website, and Xiaohongshu, an Instagram-like app, which looked at the top travel trends.
The jobless rate for people between 16 and 24 years old reached a record 20.4% in April, according to official statistics.
The youth unemployment rate could get even worse as a record 11.6 million college students enter the already tough job market this summer, as the education ministry estimated earlier this year.
Different temples tend to attract different types of worshippers. The Yonghe Temple in Beijing, also known as the Lama Temple, which caters to the Tibetan Buddhism faith, is a popular site for those looking for career or financial success.
It recorded the biggest increase in visitors of any temple in the country in March and early April, up 530% from the same period last year, according to Qunar.
Lots of incense burning
China is officially an atheist nation, but it recognizes five faiths: Buddhism, Taoism, Protestantism, Catholicism and Islam. The first two religions are an essential part of Chinese culture, with tens of thousands of temples and monasteries across the country.
Temple visits have surged this year more than fourfold from a year ago, according to recent data from Qunar and Trip.com, another travel site. About half of the visitors are people in their 20s and 30s, according to the sites.
“Under pressure about school, jobs, marriage and relationships, more and more young people are turning to traditional culture, such as temple prayer and blessings, to relieve stress,” said Yang Yan, an analyst with Chinese brokerage firm Nanjing Securities.
Social media has also fueled the boom in temple tourism, as young people like to share their experiences on social networks, she added.
Emei and Jiuhua are two of China’s famous “four sacred mountains of Buddhism,” home to the country’s largest Buddhist temples and cultural heritage sites.
Emei Mountain in southwestern Sichuan province received 2.48 million visitors between January and May, up 53% from the same period in 2019, before any pandemic restrictions were imposed.
Emei Shan Tourism, which provides travel services around the mountain, has enjoyed soaring sales, posting a record $9.8 million in net profit in the first quarter, up 262% from the same period in 2019.
Its stock surged 44% over the past 10 trading sessions, becoming one of the best performers on Chinese stock markets during the period.
Anhui Jiuhuashan Tourism Development, which runs the Jiuhua Mountain scenic area in central Anhui province, also shattered quarterly sales records.
Its revenue for the January-to-March period jumped 43% from the same period in 2019 and was the highest since its 2015 listing. Its shares were up 34% over the past 10 trading sessions.
Taoist sites have also seen strong growth in worshippers.
Longhu Mountain in Jiangxi province, one of the birthplaces of Taoism, received 4.73 million visitors during the first quarter, up 47% from the same period in 2019.
Wudang, another famous Taoist site featured in the film “Crouching Tiger, Hidden Dragon,” recorded a 23% jump in visits for the January-to-March period compared with 2019.
Besides praying to deities for career success, supplicants are seeking luck in winning the lottery.
The Communist Party banned gambling in China when it took power in 1949. But the government runs two types of lotteries to raise money for sports events and welfare projects.
Lottery sales hit 50.33 billion yuan ($7.1 billion) in April, up 62% from a year ago, according to data released by the finance ministry in late May. That’s the highest sales for the month of April in a decade.
“It’s clearly a real-life placebo,” analysts at Hangzhou-based Caitong Securities wrote in a research report Sunday. In medical research, the placebo effect is the experience of feeling better after a dummy pill or treatment
During uncertain economic times, more people tend to seek solace in faith or other comforting activities such as buying lottery tickets, raising pets, attending concerts or spending time on hobbies such as anime or comics, the analysts said.
“The core attraction of buying lottery tickets is to bring people solace,” they added.
Are we in a recession right now? What economists have to say
Over the past year, economists have proclaimed that the U.S. is headed toward recession so relentlessly, you might think we’re already knee-deep in a slump.
But the economy has been remarkably resilient and, though wobbly at times, has repeatedly defied forecasts of a downturn. Economists, in turn, have continued to push out their estimates of when a recession will begin.
Yet forecasters still say there’s a 61% chance of a mild slide this year, according to those surveyed by Wolters Kluwer Blue Chip Economic Indicators.
All this begs the question: Are we in a recession now?
What happens in a recession?
Many Americans are familiar with the informal definition of a recession: Two straight quarters of declining gross domestic product, which is the value of all goods and services produced in the U.S.
But the real litmus test is more subtle. A recession is “a significant decline in economic activity that is spread across the economy that lasts more than a few months,” according to the National Bureau of Economic Research. NBER looks at a variety of indicators, particularly employment, consumer spending, retail sales and industrial production. The non-profit group often announces when a recession has begun and ended months after those milestones have occurred.
GDP fell each of the first two quarters of 2022 but much of the drop was traced to changes in trade and business inventories – two categories that don’t reflect the economy’s underlying health.
Why do economists expect recession?
Over the past 14 months, the Federal Reserve has raised interest rates at the fastest pace in 40 years to bring down inflation. Typically, when the Fed hikes rates so aggressively, borrowing to buy a home, build a factory and make other purchases becomes much more expensive. Economic activity declines, the stock market tumbles and a recession results.
Was there already a recession?
No. During the pandemic, households amassed about $2.5 trillion in excess savings from hunkering down at home and trillions of dollars in federal stimulus checks aimed at keeping workers afloat through layoffs and business closures.
As a result, Americans have a big cushion of savings to help them weather high inflation and interest rates. They’ve whittled down much of those excess reserves but about $1.5 trillion still remains, according to Moody’s Analytics.
Consumers also still have lots of pent-up demand to travel, go to ballgames and dine out now that the health crisis has receded. So while consumption has flagged, rising just 1% annualized at the end of last year, it bounced back and grew 3.8% in the first quarter.
Also, both households and businesses have historically low debt levels, Moody’s says, and so they’re not burdened by high monthly debt service payments.
Back in a bull market: As stocks pass a key milestone, here’s what you should know
Are we in a recession right now?
The vast majority of top economists say no. Housing has been in the doldrums, with home prices starting to decline, because of high mortgage rates. And manufacturing activity has contracted for seven straight months, also in part because of high rates that have dampened business capital spending.
But consumer spending, which makes up about 70% of GDP, has been surprisingly healthy, jumping 0.5% in April after adjusting for inflation.
As a result, the most critical economic indicator- employment – has stayed strong, with the public and private sector adding an average of 283,000 jobs a month from March through May. Also, longstanding labor shortages have led many businesses to hold onto workers instead of laying them off despite faltering sales.
All told the economy has lost some steam but it’s not shrinking. GDP grew at a 1.3% annual rate in the first quarter. And it’s projected to grow 1% in the current quarter, according to S&P Global Market Intelligence.
Will there be a recession in 2023?
Most economists still expect a recession in the second half of the year. They say the Fed’s high interest rates eventually will be felt more profoundly by consumers and businesses. At the same time, banks are pulling back lending because of deposit runs that led to the collapse of several regional banks early this year.
Perhaps the most reliable indicator of a coming recession is an inverted yield curve. Normally, interest rates are higher for longer-term bonds than shorter-term ones because investors need to be rewarded for risking their money for a longer period.
But the yield on the 2-year Treasury bond has been well above the 10-year Treasury for months. That’s been a consistent signal of recession because investors move money into safer longer-term assets – pushing their prices up and their yields down – when the economic outlook grows dimmer.
US and Allies Condemn Economic Coercion With Attention on China
(Bloomberg) — The US and five major allies condemned economic coercion and non-market policies regarding trade and investment in a joint declaration that didn’t cite China by name but clearly had Beijing in mind.
The six countries expressed concern about practices that they say “undermine the functioning of and confidence in the rules-based multilateral trading system.”
The message from the US, Australia, Canada, Japan, New Zealand and the UK carries no economic consequences and mirrors one released by Group of Seven nations after a meeting of leaders last month.
A US Trade Representative official, speaking to reporters on condition of anonymity before the statement’s release, said China has been the biggest perpetrator of the behavior condemned in the declaration.
The official mentioned China’s decision to cut off trade with Lithuania in 2021 after that Baltic nation allowed Taiwan to establish a diplomatic office there as an example of the kind of economic coercion that the declaration singles out.
Read More: G-7 Eyes China With New Joint Effort Against Economic Coercion
In response to a reporter’s question, the official rejected any comparison to the US, which has become one of the most prolific purveyors of measures that could be seen as economic coercion, chiefly through financial sanctions and limits on technology exports to countries including China.
US sanctions occurred in accordance with US laws and procedures, and in light of relevant rules and norms, the official said. The declaration makes explicit that it didn’t apply to actions that have “a legitimate public policy objective.”
“These legitimate public policy measures include: health and safety regulations, environmental regulations, trade remedies, national security measures and sanctions, and measures to protect the integrity and stability of financial systems and financial institutions from abuse,” according to the declaration.
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