Red signals are flashing on the state of economy under still-high interest rates
“Although the CFIB Business Barometer covers only small firms, in recent years, the survey indicators have provided a fairly accurate steer to economic conditions,” he said in an analysis.
“The details were downbeat,” he said, adding that the number of small businesses experiencing “insufficient demand” rose to 53.3 per cent last month.
“That seems to suggest that the output gap (the difference between what an economy is creating and its potential) is far larger than 1.25 per cent of GDP, as the Bank of Canada estimates,” Brown said.
That’s not all the economist found in the CFIB report to make him think the Bank of Canada needs to increase the size of its next interest rate cut.
Brown estimated the job vacancy rate is now at three per cent, which is below the 2019 average of 3.2 per cent.
“The soft pace of third-quarter growth, combined with the host of worrying indicators elsewhere, leads us to think that the (Bank of Canada) will enact 50 basis point cuts at both the October and December policy meetings,” he said.
The Bank of Canada’s remaining meetings for 2024 will be held on Oct. 23 and Dec. 11.
Brown said markets are currently pricing in one 50-basis-point cut “with 75 basis points priced in across the two meetings” to the end of the year.
The persistent rally in stocks was knocked for a loop Tuesday as investors retreated to safer corners of the market when the conflict in the Middle East intensified.
Haven assets were bid up with bonds, oil, gold and the U.S. dollar all advancing after Iran fired a barrage of missiles at Israel following an advance of armed forces into Lebanon. The United States is actively supporting preparations to defend Israel, according to an earlier report.
Gold climbed above US$2,670 an ounce during the trading day while oil briefly topped US$71 a barrel.
“Markets are in wait and see mode,” said Kathleen Brooks, research director at XTB. “The next 24 hours will be critical to see how far this situation escalates and whether the rush to safe havens was justified.” — Bloomberg
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