(en anglais seulement)

Hello and welcome to our video MacroMemo. As always, there's a lot to cover off.

We're going to talk a bit about our business cycle scorecard, what it's saying about where the U.S. economy is in the economic cycle. We'll talk about central banks, who for the most part are still in rate-cutting mode.

It's actually gaining momentum. And the U.S. is seemingly on the cusp of taking action as well. It had been a holdout. We will talk about the U.S. election or really what we'll talk about, is the greater clarity we now have on Democratic Party candidate Kamala Harris’s economic platforms.

We'll spend a moment there. We'll talk about the U.S. economy more generally. And it has actually had some decent numbers. So those acute fears from early August, maybe the economy was plummeting into a recession right then, seem to have been wrong headed.

The economy is still alive, at least for the moment. And then we'll finish with some Canadian content, a number of different things, actually, including the recently averted or brief, I should say, rail lockout, and just what that might mean for the economy.

Rising youth unemployment, where that comes from, what the story is there. We'll talk as well about some immigration rule changes that were recently announced, all of which I think are consequential to the Canadian economy. That's the plan.

Let's go back to the top and we'll begin with that U.S. business cycle scorecard we maintain.

We revisit it every quarter and this quarter it is continuing to say that the U.S. economy is most likely at a mid-cycle or late cycle moment. And so I would loosely interpret that as meaning you would guess that maybe there were 2-5 years of economic growth left, or something like that. Not a happy decade of growth left, but neither staring a recession in the face.

I will say that unfortunately, the scorecard doesn't have a lot of conviction this time. The way it works is we have quite a number of variables. They all give their vote as to where we are in the cycle. There's a lot of disagreement inherently within that.

But there's unusual breadth this time. And so you can see a lot of votes for almost every one of the six options across the cycle that we maintain. Really, it's kind of funny. The only one we can say, well, probably not, is early cycle. It didn't get very many votes. But all the others got a fair amount of votes.

Again, mid-cycle and late cycle got the most. I think that is the most likely. That's actually consistent with our economic forecast. But it is a confusing time. There's less clarity on this than normal.

That probably feels about right, given what we know about the economy or maybe don't know about the economy right now.

Let's move from there to central banks. And so developed world central banks are very much gaining steam, at least in terms of rate cutting. And so just to bring you up to speed, Sweden recently did its second rate cut. I mention that because a lot of central banks have done one, but not that many have done more than one yet.

And so Sweden now, joined the two-cut club. Bank of Canada on the cusp of leaving that club on September 4th, expected to cut rates a third time. The Bank of Canada is actually leading the way among major developed central banks in that regard.

The U.S. Federal Reserve hasn't done anything yet, at least as I record this. But it’s widely expected to deliver its first rate cut on September 18th. So that’s getting pretty close.

The market for a while played with the idea that it could be a big 50 basis point rate cut. It still prices in about a 1 in 3 chance of that. We're a bit dubious. I mean, it could happen if something really nasty were to occur in the next few weeks. But as it stands now, with the information we have now, a 25 basis point rate cut I think makes more sense.

And I would interpret the recent Fed Chair Powell Jackson Hole speech and the latest Fed minutes as being consistent with that kind of assessment, but with the view that we can then get a fair amount of rate cutting in the meetings that immediately follow that as well.

European Central Bank will likely go on September 12th. It's probably going deliver its second rate cut.

Bank of England data will likely cut in early August. It may delay September, but later in the fall it seems reasonable that they may get going again.

And I want to mention one other central bank, one that we don't actually talk about that much normally, which is Australia, the Reserve Bank of Australia. I just mention it because it was actually pricing in, or markets were pricing in rate hikes for it as of late July. That was very much different than
most other central banks.

Maybe it's a little nervous, just because, we saw that Australian inflation was proving a bit sticky, and we wondered whether it was a leading indicator or a bellwether for some disappointment that could arise elsewhere in the central bank space. It ultimately doesn't look like that's the case. Australian inflation is behaving a little bit better again.

Markets actually have pivoted from expecting rate hikes to expecting rate cuts again. So it doesn't look like Australia is going to be racing toward cuts. But the market now thinks there probably is a cut later this fall. There isn't a competing significant narrative out there in which rates don’t get to come down.

Let's go from monetary policy to fiscal policy, the other main side of government policy. And in the U.S. context, in the presidential election context, which, by the way, is just over two months away as I record this. It’s getting very, very close.

Of course, with Biden's opting out, we have vice president Kamala Harris, as the Democratic Party candidate for that race. And we have now seen her release additional clarity at least on her economic platform, which we, of course, care about as economists. And so, much of it is largely in line with the Biden agenda. In fact, there is no great departure.

Perhaps that's the main story. She does endorse, as Biden did, raising the corporate tax rate from 21% to 28%, raising the top individual tax rate for all types of income, not just working income or salaries but also capital gains and so on.

Do note, by the way, that Biden has favored this for years. It hasn't happened just because it hasn't had congressional support. That might remain the case.

She would maintain the Inflation Reduction Act and its environmental priorities. Would keep Obamacare, of course. Would still aspire – does still aspire – to tighten the border as per legislation the White House proposed earlier in the year that just didn't gain traction in Congress.

So a lot of continuity with Biden.

Some new policy ideas specific to Harris, I think I can say, include:

• Enhancing the child tax credit, taking it from $2,000 a child to as much as $6,000.
• Enhancing the earned income tax credit. That's a benefit disproportionately for middle- and lower-income Americans. So taxing the rich and passing that on a little bit down the income spectrum.
• Expanding the price cap on certain medications.

This sounds similar, but I think it's being viewed more negatively in an economic context: banning “price
gouging” at grocery stores, which sounds attractive, but it does create some tricky questions as to how one does that without returning to the 1970s’ wage and price controls, which didn't go very well.

But in any event, that's on the agenda, as well. And then a lot of talk about housing as well, and some is supporting demand and giving $25,000 to people buying houses, which I would argue would probably only raise home prices. So not that helpful.

But also talking about the supply side and finding a way to build 3 million more houses. Supply side solutions are probably more credible, at least as a theoretical solution, for housing market woes.

So quite a lot going on there. Do keep in mind, as I mentioned, that congressional limits do ultimately constrain the ability of any president, whether it's Trump or Harris, to get their full agenda through. They tend to be a bit more muted and a bit more centrist in terms of what actually gets through.

In terms of the race itself, it does remain close. It's even tightened up a little bit in recent days. That is to say that for the moment, Harris had built a pretty notable lead. In some of the prediction markets out there that's retreated down to about a 54% chance that Harris wins, as viewed by Predictit. Some of the other betting markets out there have it even a bit closer.

But generally Harris has a slight lead over Trump.

Let's pivot to the economy now. And so just a quick U.S economic checkup broadly. The theme – and this is a global theme – is one of economic deceleration. Economic surprises, as an example, are still negative. Global commercial flights are starting to dip lower after a number of years of rising. So we are seeing signs of a slowdown.

But I want to say that there was this very acute moment of fear, particularly in the U.S. in early August. The thinking was “Gosh, has a recession already started?”

There was a bad job number. There was a bad ISM (Institute for Supply Management) manufacturing report. People panicked. The market went down for a moment. And I can say that those fears rightly are continuing to fade. So we can debate recession, no recession and it's not a surefire guarantee the economy continues to grow over the next year.

But it doesn't seem like we're tumbling into something bad at this exact moment. Further support for that thought would include the fact that we have recently seen weekly jobless claims start to fall again, which is a good thing. They had been rising.

We've seen consumers looking okay, retail sales up. Walmart and Target talking about decent consumer demand. And small businesses, which have been very unhappy for a very long time -- and largely, we think, related to high interest rates -- their confidence rose in the latest month to the highest we've seen since February 2022 which, not coincidentally, is right around when rates started to go up.

And so the U.S. economy, at a bare minimum, still alive according to what we can see in the data.

I'll finish with some Canadian thoughts. It's a number of different Canadian thoughts, really. The first one would be that there was a rail lockout or rail work stoppage to speak more broadly. It only lasted four days, but it was consequential because it was the two big rail shipment companies in Canada. And so, we have seen some damage. There was some additional loss as the companies prepared for the shutdown.

And it will take some time to restore activity. Very roughly, we would guess that there will be perhaps 1 to 3 billion dollars of economic damage. That's less than 0.1% of GDP for a year. Not an overwhelming hit to the Canadian economy, but I think it will be visible in some of the August data, and certainly a headache for the rail companies and a headache for certain producers – including in the agricultural grain space and potash and some other industries that are very rail reliant.

When we talk about the Canadian economy more generally, we are seeing genuine weakness. The economy is definitely slowing. And Stats Canada's business conditions survey is proving to run at a below trend rate and GDP growth has decelerated. In fact, really, if it weren’t for rapid population growth, the Canadian economy would be in recession or at least be in stagnation

GDP per capita, so controlling for population, it's declining pretty sharply. It's not the normal experience. This is a bad environment for the average person, not totally dissimilar to a recession, if minus – and this is an important minus – if minus large-scale job losses.

But it's a time of economic weakness in Canada right now. You can see that in a rising unemployment rate, which has gone from 4.8% to 6.4%. That's not a high number, but it's no longer a low number.

And when you look at youth unemployment in particular, that is up from 9.3% -- and youth unemployment is always higher, just less skilled people and less time for job matching and so on – so up from a low of 9.3% to 14.2%.

Now that's a pretty high youth unemployment rate, a bigger increase than elsewhere. That's a combination of economic weakness, plus a lot of temporary immigration that's competing directly with Canadian youth. And so that certainly created some concern.

I think, not coincidentally, the most recent Liberal Party summit has revealed some immigration rule changes. They are going to further scale back some of the temporary foreign worker rules specifically for low-skilled workers. That would seem to be the group in competition with Canadian youth.

For instance, the new limit is 10% instead of 20% of a company's workforce, and you can only do it if your region has an unemployment rate of below 6%. The nation is above six, so a lot of places won't therefore be eligible. And you can only stay for a year instead of two years as well.

So they're making some rules to tighten things up.

I would just note that the low skilled immigration stream for temporary foreign workers in Canada was only 84,000 people in 2023. That's only 7% of the immigrants that came to Canada. So that's not the complete solution. But that probably is the right step toward addressing some of the excesses that have hurt the housing market and hurt unemployment and hurt some other things as well.

It looks like they may also target a lower permanent immigration number. The target has been 500,000 people a year. That might go down a little bit, they said. And the suggestion is that there may be more to come as well. So the immigration numbers should start to come down based on these announcements. Plus, I should say some earlier moves as well.

I'm going to finish with one last Canadian thought. As you may well know, the Canadian mortgage renewal wave is approaching. We estimate that 55% of all mortgages outstanding at the big six Canadian banks are renewing in 2025 and 2026. That's in large part due to a surge in home buying in 2020 and 2021, which is five years earlier, and it's a five-year term.

That's consequential in part because a lot of people are renewing, but in large part because of course, they locked in at very low rates in 2020 and 2021. The rates will now be significantly less low. And so it's likely there will be some pain.

Bank of Canada has done some calculations, estimates that the average payment will rise 20 to 40%. So that's a pretty big jump that people are going to have to try to afford. And I have to say that then put some pressure on the Bank of Canada in terms of rate cutting.

So certainly the main motivation is inflation is coming down and the economy is weaker and so on. But I think one of the reasons the Bank of Canada is moving with a little bit more vigor than a lot of central banks out there is, they know that this wave is coming, and they'd rather not have especially high rates as that wave hits.

Okay, I'll stop there and I'll say, thanks so much for your time, as always. Hopefully you found this interesting and tune in again next time.