Tag Archives: GDP

02.27.26
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Oh, Canada!

By: Russ Kamp, CEO, Ryan ALM, Inc.

There were significant trade developments announced yesterday between the U.S. and Canada, which don’t seem to be getting the attention that they deserve. I wish that these developments were driven by Canada in retaliation for both the women’s and men’s gold medal performances in Italy, but it seems as if the U.S. is being a sore winner in this situation.

So, what happened yesterday? U.S. under President Trump has reclassified Canada from a Tier 1 allied trading partner to a Tier 3 restricted commerce nation through an executive order.​ Oh, boy, that sounds onerous. It seems as if this escalation follows tensions brought about by new U.S. tariffs on Canadian goods such as steel, lumber, and energy products prompting Canada to diversify partnerships with China, Mexico, and others. Previously, Canada ranked as the U.S.’s top export market and second-largest trading partner overall, with highly integrated supply chains in autos and energy. The move to tier 3 immediately increases tariffs to 35% on ALL Canadian goods – ouch! Furthermore, this classification places Canada in the same trading bucket as countries such as Belarus and Venezuela.

Not surprisingly, Canada, led by Prime Minister Mark Carney, is countering by pursuing deeper relations with China, Ecuador, Indonesia, and India to reduce U.S. reliance, which still accounts for nearly 70% of its exports. According to various press reports, the White House announced the order approximately two hours before it became public, automatically imposing a 35% tariff on all Canadian goods, financial restrictions, and a freeze on joint military contracts. Canadian Prime Minister Mark Carney responded within 90 minutes by announcing countermeasures in Parliament, including export controls on critical minerals, such as potash, and withdrawal from NORAD data sharing.​

This move is highly disruptive to integrated North American supply chains. The decision followed escalating U.S. tariffs and was defended in Trump’s recent State of the Union address.​​ Canada now faces sharp export declines to its largest market, potentially worsening its trade balance and likely depreciating the Canadian $. Business investment drops due to higher costs for US machinery, leading to layoffs, reduced GDP growth, and sustained inflation from tariff pass-throughs. The potential for retaliatory measures like export controls on minerals will further strain relations between these two long-term allies.

Please don’t think that this development only strikes at Canada’s economy. US consumers and industries will see higher input costs such as steel, which estimates suggest could be as high as $7.5B+, leading to inflation and eroding competitiveness in batteries, clean energy, and defense. Canadian retaliation reduces US exports, impacts GDP, and exacerbates supply chain vulnerabilities with no quick domestic substitutes.

Higher inflation will impact interest rates, leading to higher costs of borrowing, and depending on the significance of these developments could lead to a bear market environment and an economic slowdown concurrent with existing labor force concerns. So, why isn’t this getting more attention?

05.14.24
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What’s The Hurry?

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

“Fed To Cut Rates in September, Say Nearly Two-thirds of Economists.”

This pronouncement was in large bold font on an email that I received this morning from the Wealth Advisor. Should I be skeptical? You bet!!

As you may recall, there was near unanimity among “economists” late last year that the US Federal Reserve would begin reducing rates RAPIDLY as the calendar flipped to 2024. In fact, consensus was fairly strong that there were going to be 4-6 cuts of between 1.0%-1.5%. There was even a leading bank that saw the need to reduce rates by 2.5% – oh, my. What happened? At this time I’m particularly interested in the 1/3 of economists that were predicting huge cuts at the end of 2023 that aren’t buying a September cut at this time. Those are the ones that I want to hear from.

What has changed from late last year when the labor market was strong, inflation was sticky, economic growth was stronger than expected, the stock market was raging ahead, and fiscal policy was in direct conflict with the Fed’s monetary objectives? Nothing has changed!

What is the urgency to cut rates? The Atlanta Fed’s GDPNow model is predicting a 4.2% annualized growth rate for Q2’24 (latest update as of May 8th). Does a growth rate of that magnitude warrant a rate cut? Heck no! Yes, there is the issue that most of today’s investors don’t remember the 1970s, if they were even born, but I do. Fed missteps lead directly to incredibly high inflation and US interest rates. Today’s rate environment is nothing compared to that era. Why risk a repeat? Stagflation became a reality. Is that something that you want to witness again?

Seniors and those living on a fixed income can finally earn some interest on their investments without having to dive into strategies that they don’t understand just to earn a little more interest. Pension plans can finally use fixed income to secure some or all of their promises to plan participants by matching bond cash flows of interest and principal with pension liabilities (benefits and expenses). Endowments and foundations can invest more cautiously knowing that they can earn a return from less risky assets that will help them achieve a return commensurate with their spending policy. This is all good stuff! Use this environment to take some of your assets off the asset allocation rollercoaster before our capital markets reach the apex of their journey. The next downward trajectory could be a doozy!

01.10.14
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KCS told you this 15 months ago

KCS told you this 15 months ago

Mr. Bernanke said recent government spending cuts and tax increases have worked against the Fed’s efforts to encourage more spending, investment and hiring.
“With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be,” Mr. Bernanke said, stepping up arguments he has made about recent government efforts to reduce near-term budget deficits.

These comments were taken from the attached WSJ article from January 3, 2014

This article was brought to my attention by my son, Ryan, who also reminded me that KCS had reported nearly 15 months ago that the fiscal drag created by both deficit reduction and tax increases would combine to damp economic activity and the recovery from the great recession.  Economists estimate that the US economy grew in 2013 at roughly 2.1%, which is very modest given this many years into the “recovery”. 

As a reminder, KCS produces a monthly investment article on a variety of topics.  In addition, we occasionally produce a piece titled “Burning Issues”.  In the October 2012 Fireside Chat, and again in the January 2013 Burning Issue, we highlighted the potential drag from fiscal tightening.  Both articles are available on the KCS website at http://www.kampconsultingsolutions.com.

GDP= C+I+G+(X-M), where C=consumption, I=Investment, G=government spend (deficit) and X-M=net exports

The consumer has been, until recently, reworking their balance sheets, and have reduced debt to roughly 92% of earnings. Corporate investment has been tame, but appears to be growing at a faster pace, and this should continue through 2014.  Net exports remain a large drag on GDP, but trade imbalances have improved.  The fiscal deficit has been cut nearly in half through spending cuts and tax increases.  We are unlikely to see greater fiscal cuts in 2014, so the drag on GDP may be lessened.

We, at KCS, are expecting GDP growth to be slightly greater than current forecasts (2.7%).  In fact, it would not surprise us to see GDP growth exceed 3% – 3.5% in 2014. Our hope is that greater investment will continue to strengthen the US labor market, increasing wage growth and spurring demand for goods and services. If this scenario materializes, our GDP forecast may be understated.