 Monday, September 09, 2024 | | | Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | Concerns are rising about the economic road ahead. (karen roach/Shutterstock) | | | Isn't it always the case: as soon as one problem gets sorted out, another emerges.
Inflation seems to be firmly headed in the right direction. We will get the latest price growth numbers out of the U.S. on Wednesday (and Canada's latest the following Tuesday).
They should confirm that the inflation dragon, if not slain, is definitely in retreat.
And already, concerns have pivoted.
I wrote a piece last week saying the Bank of Canada is in a race against time. The BOC is hoping it can cut interest rates quickly enough to stave off a recession.
You can read that piece here.
You'd be hard pressed to find someone who thinks the economy is doing well right now. The unemployment rate has ticked up yet again and now sits at 6.6 per cent.
And if you need a sign of how badly the economy needs a boost, just look at GDP numbers. They've been stuck in the mud for months now.
GDP per capita tells an even more troubling story. | | |  | | | | | Seven of the last eight quarters have posted negative per capita growth.
Remember, it generally takes 18 months for changes in interest rates to fully work their way into the economy. The last rate increase was in July 2023. So we are still absorbing the impact of rate hikes that were designed to slow the economy.
The problem is we don't need to slow the economy anymore.
“With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much," said Bank of Canada governor Tiff Macklem on Wednesday, as he cut rates for the third time in a row.
That's the first time since the financial crisis in 2009 that the Bank of Canada has cut at three subsequent meetings.
By next summer, we may well be looking at eight straight cuts (investors are betting the bank's key overnight lending rate will be around three per cent by next July).
For context, there were only 10 cuts through the worst of the great financial crisis in 2008-2009.
The thing keeping the central bank up at night is no longer inflation. It's the broad slowing of the economy. And the indicator flashing red is the rising unemployment rate. |  | Source: Oxford Economics | | | The jobs market is a bit weird right now. The Canadian economy is still adding jobs at a healthy clip. The problem is that's still not enough to keep up with population growth.
The federal government has announced it will start to limit the number of international students and the number of temporary foreign workers.
That will address both per capita GDP figures and help address the rising unemployment rate.
The problem is that population growth has been integral to keeping Canada's GDP above water.
“The only reason the economy has stayed out of a recession is because of aggregate consumer spending,” said Tu Nguyen, an economist with RSM. And that, she says, has been almost entirely driven by population growth.
So as population growth slows, what will that mean for an economy that's already struggling?
And what can the Bank of Canada do to try to help turn things around?
As always, send me a note.
My email is: peterarmstrong@cbc.ca | | |  | | US. inflation numbers come out on Wednesday. Expect to see the year-over-year rate fall to around 2.6 per cent. Inflation may not be dead yet, but it's losing ground. | | | | | | Bank of Canada governor Tiff Macklem will give an address in London on Tuesday. He will speak on the issue of "global trade from a Canadian perspective." | | | | | | Apple is set to unveil new phones on Monday. But keep a close eye on the rollout of Apple’s AI platform as well. | | | | | Three things to read, watch and listen to this week | | |  | The Toronto International Film Festival kicked off last week. (Michael Wilson/CBC) | | | 1. Not that TIFF | | | The Toronto International Film Fest kicked off last week.
TIFF is a unique beast among the world's film festivals. Unlike Cannes or Sundance, it remains focused on movie-going audiences.
"This film festival is like a giant focus group," said CBC entertainment reporter Eli Glasner. "If you have a movie that you think might be Oscar-worthy ... there is no better place still to get that buzz and get that word of mouth going than coming to Toronto and launching your movie here."
And as far as buzz goes, this could be a big year. Last year's festival season landed during the Hollywood strike. Before that, we were still dealing with the fallout from COVID-19.
TIFF CEO Cameron Bailey told CP24 the annual cinematic showcase is “back in a big way” this year.
Colleague Jackson Weaver has a good breakdown of what's airing over its 10-day run.
Among the biggest draws are Megalopolis, Francis Ford Coppola's ambitious but thus far panned allegory for the fall of Rome.
Amy Adams headlines the wacky Nightbitch, in which she plays a mom who thinks she's transforming into a dog.
The one I'm most interested in is Saturday Night.
"Director Jason Reitman captures the frenzied lead-up to the very first episode of Saturday Night Live as a motley bunch of then-unknown and untrained young comedians prepare to step into a revolutionary spotlight that will change history and make them all stars," reads the promotional piece from TIFF.
It's a wild festival and a wild week.
Track all our TIFF coverage here.
Watch Eli's piece on the unique nature of the Toronto International Film Festival here.
Read Jackson's piece on what to watch for here. | | | 2. Can you spot the AI clone? | | | When I was a kid, we got a VIC-20 computer. It was the early 1980s and the thing seemed like magic. I took a basic programming course down at Trafalgar Village shopping mall and played games like Omega Race and Gorf.
But the lasting impression of our old VIC-20 was of how limited it was.
Any basic smartphone has about 1,000 times the processing power. So I can't help but look back and think of that once-groundbreaking piece of innovation as cute and perhaps even naive.
I sometimes wonder how we will look back on artificial intelligence. Will it be with a dismissive shrug, like other innovations, or in awe at the speed with which it changed our lives, like the personal computer.
That's the question at the heart of the absolutely amazing podcast Shell Game.
Over six episodes, journalist Evan Ratliff combines some AI voice software and OpenAI's GPT-4o to build a rough AI clone of himself.
He then dispatches said clone into the world. It harangues customer service agents, toys with scammers, annoys his wife and even chats with his kids.
At one point during the lead-up to the podcast's launch, Ratliff had the AI clone sit in as his proxy for an interview with Semafor's Reed Albergotti.
Albergotti wasn't fooled, of course. The AI clone is clumsy and awkward. It also lies a lot (it made up the names of the episodes and wrongly stated it was using an earlier iteration of the OpenAI chatbot).
The Semafor article is a fascinating read (and an important part of one episode of the show), but I've been thinking a lot about this line in particular:
"It’s important to remember that AI voice cloning is an emerging technology and it is still in its infancy. Often, journalism meant to raise alarm bells about technology ends up missing the real issues, because we really don’t know what those issues will be," wrote Albergotti.
Which brings me back to my VIC-20. As I sat in my parents' basement playing around with that early iteration of a home computer, I was simply incapable of imagining the tool I'm writing this newsletter on today (let alone the way this computer connects to the internet).
Shell Game is really fun. I laughed out loud at several moments. It made me think about technology in new and important ways. But mostly I think it will serve as a snapshot in time, something to look back on years from now, as we have some more perspective on AI and what it's actually capable of doing.
Check out the podcast Shell Game here. | | | 3. A new currency in Argentina | | | Imagine dealing with runaway inflation.
In Canada, we all felt positively clobbered by an inflation rate that peaked at 8.1 per cent.
In Argentina, the rate is expected to close the year at an annualized rate of nearly 123 per cent.
Argentina's President Javier Milei has introduced some shock economic therapy. It's being billed as a high-stakes bid to tame inflation.
He's proposing a radical plan to eliminate the domestic currency and use U.S. dollars instead. He's drastically cut government spending.
And as a Bloomberg piece makes clear, the impact has been severe.
"When Milei slashed the monthly cash transfers from the federal government to the provinces, La Rioja went broke. In February, it fell into default. And soon the local economy had sunk into a deep recession," wrote Bloomberg's Ignacio Olivera Doll.
So the La Rioja governor, Ricardo Quintela (who happens to be a Milei critic), came up with his own plan.
"He created the province’s own currency, the chacho, had sheets of it printed up and started doling it out in wads of 50,000 to all government employees," wrote Bloomberg.
Fifty thousand chachos is equivalent to about $40 US (or $54 Cdn). The average monthly salary in La Rioja is just $240 US ($325 Cdn).
The governor asked local merchants to accept the chachos and told them he'd exchange them one for one with pesos. But if they hold onto them until Christmas, he'll exchange them for 1.17 pesos. That's an interest rate of 17 per cent, or nearly 50 per cent annualized.
"This illustrates the essence of what the whole chacho scheme ultimately is: a way for a deadbeat province that has been cut off from federal funds and locked out of debt markets at home and abroad to obtain financing and keep spending," wrote Olivera Doll.
It speaks to just how awful, but also how difficult, serious inflation can be.
The Bloomberg piece is a wonderful read.
Read about the chacho and Argentina's economy here. | | | How the economy looks beyond Bay Street | | | Back-to-school costs | | | We always talk about "the economy" as though it's one giant thing. It's much more accurate to think of it as a bunch of things: regions, income levels, savings rates.
I saw some version of this tweet doing the rounds leading up to the Federal Reserve's next interest rate decision, highlighting how (some) people are spending positively gobsmacking amounts of money on things.
Most of us, of course, are struggling to keep up with rent and mortgage payments. | | |  | But the post raises a bigger issue (as the Morning Brew newsletter often does).
Even here in Canada, the average savings rates and household net worth numbers are surprisingly high.
Scotiabank's Derek Holt had a bunch of charts he sent out last week showing excess savings still sit at about $470 billion. He found household net worth in Canada is almost $2 trillion above pre-pandemic trends.
"Households have squirrelled away their gains in an arsenal that is likely to prove tempting to spend by the 60 per cent of households that don’t have a mortgage and much of the remaining 40 per cent that is managing resets just fine," he wrote to clients.
I guess the point here (no surprise) is that economic recoveries are rarely, if ever, evenly distributed.
The stats may tell us savings rates and household wealth are up. But it could also simply mean wealthier households are better off than they were, while middle-income households remain in deep water. | | | Share this newsletter | | or subscribe if this was
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