Global Investment Outlook

For a comprehensive 2023 market outlook, please refer to our newly released quarterly Global Investment Outlook.

For the economic article embedded within that publication, refer here: “Incremental positives in a challenged world.”

COVID-19 developments

There are two main COVID-19 stories right now:

1. As rapidly as the BQ.1 and BQ.1.1 sub-variants took over in recent months, they appear set to relinquish that lead in the near future to a new family of sub-variants: XBB and XBB.1.5 (see next chart). The former had ascended from virtually nothing in October to represent 55% of all new cases in the U.S. as of January 7.

BQ.1 and BQ1.1 are the dominant variants but XBB is starting to catch up

As of 01/07/2023. Sublineages of BA.4 are aggregated to BA.4. Source: Centers for Disease Control and Prevention, RBC GAM

The latter were barely on the radar in early December and have now increased to a 33% share over the span of a single month. If this seems inconsistent with news reports that XBB has already become the dominant strain, the Centre for Disease Control recently revised its estimate downward. However, the XBB family appears set to become the dominant strains within the next month, surpassing the BQ family. The XBB.1.5 sub-variant has been nicknamed “Kraken” and appears to be the most aggressive of the bunch.

As usual, each new dominant variant is thought to be more contagious and/or more immune-evasive than prior variants. Fortunately, the XBB family doesn’t appear to be any more deadly than prior variants.

At present, the official global rate of infection remains low, but this is in part because testing has become much less intensive. Hospitalization figures argue that the pandemic intensified over the past month in the U.S., with mixed trends elsewhere (see next chart).

COVID-19 hospitalizations trend lines vary in developed countries

Based on data available as of 01/08/2023. Source: Our World in Data, Macrobond, RBC GAM

2. The second COVID-19 story remains China’s abandonment of its zero-COVID policy. The official numbers continue to suggest oddly few infections and virtually no deaths. But this is universally thought to be a radical underestimation of the true situation. To illustrate the magnitude of the mismatch between official reports and reality, China’s National Health Commission officially reported just 62,592 infections over the first 20 days of December. In contrast, a deputy director for the Chinese Centre for Disease Control confidentially estimated that 250 million Chinese people had actually caught COVID-19 over that time period, with as many as 37 million people infected in a single day.

That torrential rate of infection has presumably continued over the past several weeks, such that China may well be through the worst of its massive outbreak in the next month.

Until then, of course, the economy suffers acutely. Some factories are reporting their labour force is at only one-quarter of capacity, and ports are starting to back up. There will likely be a temporary deterioration in global supply chains (though the broader trend is toward improvement).

China’s economy can then begin to revive, providing an important counterweight to economic weakness elsewhere in 2023.

The other Chinese COVID-19 issue is that, with up to 1.4 billion people becoming sick in short order, the risk is elevated of new variants emerging. This additional risk would have manifested eventually as China could not avoid the virus forever, but is relevant to observe that the time is now. Fortunately, the dominant variant in China is the relatively ancient and thus uncompetitive BA.5. Any new mutations off of BA.5 are unlikely to outcompete the BQ or XBB sub-variants that have already outpaced BA.5 elsewhere in the world. Simultaneously, because China has so little natural and vaccine-induced immunity in its population (recall the Chinese vaccines were notably ineffective), the risk of antibody-resistant mutations forming is lower than otherwise.

Chinese economy

Chinese policymakers continue to scramble to stabilize the economy after a series of ill-advised policy decisions sent it stumbling in 2022. Prior rounds of initiatives included support for home builders and the housing market, the aforementioned loosening of COVID-19 restrictions and monetary stimulus.

Just before Christmas, the Chinese government made two further commitments.

1. Prioritize consumer spending and employment. Both have lagged badly over the past year. There is some potential here as the country’s savings rate soared during the pandemic. But consumers are likely to remain more cautious for some time; unemployment is still elevated, especially among the young; and debt servicing costs are commanding a significant and rising share of income (even though Chinese rates have not risen like in other countries). In turn, any fiscal stimulus directed at households could be more diluted than usual if consumers opt to save the money instead of deploy it in to the economy.

2. Provide targeted support to the private sector. After a series of actions over the prior two years that greatly limited China’s entrepreneurial spirit and the growth prospects for private sector and especially technology companies, officials are now partially backtracking. Internet platform companies will be supported in their efforts to develop and compete internationally. The private sector figured more prominently than in prior edicts – a signal that state planning will not supplant private activity quite as fully as previously thought.

All of that said, we still believe Chinese policy inclinations lie toward strict control over the population, more aggressive foreign relations and a large role for the state in the economy. The country is unlikely to sustainably return to the era of 6%+ growth.

Ukraine war

The war in Ukraine continues. Ukraine still has the slight upper hand. However, there are no longer major advances on par with the fall of 2022. Western Allies have pledged to supply Ukraine with new armoured vehicles and the latest U.S. budget furnished significant further funds.

Meanwhile Russian attacks on the Ukrainian electricity infrastructure continue. Drone attacks using Iranian-built drones have especially increased. For its part, Ukraine killed a large number of Russian troops in a barrack and destroyed a bridge being used to transport Russian military equipment.

Ukraine is warning of a large-scale Russian invasion in the New Year. If its military intelligence is correct, the war could intensify further.

Interestingly, both parties have recently declared an openness to negotiations. But the two sides are quite far apart on the specifics of any agreement, including over which country would possess Crimea after the war is over. It is hard to imagine that gap being bridged. Russian President Putin declared a temporary cease-fire during Orthodox Christmas, but it was not widely obeyed by Russian troops. The best guess remains that the war continues for quite some time.

Ukraine’s economy shrank by 30% in 2022, a colossal hit but less than initially feared. Initial expectations were in the realm of -50%. However, the story is not over yet – the infrastructure damage continues, the outflow of citizens has been extraordinary and much of the current activity supports the military effort – not a viable long-term industry.

European Union energy ministers recently agreed on a natural gas price cap for gas traded on European exchanges. This follows their commitment to an oil price cap in early December, but the details are different. The new agreement only applies to gas purchased within Europe, whereas the other – via shipping insurance – is meant to affect the global flow of oil.

All of this points to the further – and eventually, complete – disconnection of Russian energy production from developed-world buyers. Russia should still find plenty of demand in the developing world, though at a discount.

Despite ever-declining Russian supplies, Europe’s natural gas inventory levels are holding up quite well through the early part of the winter (see next chart).

Europe natural gas inventory levels are holding up well

As of 12/31/2022. Source: Gas Infrastructure Europe (GIE), Macrobond, RBC GAM

Oil forces

Oil prices have remained in the realm of $75 per barrel, despite various competing forces.

Exerting an upward pressure, Russia has responded to the oil price cap by banning compliant nations from receiving Russian oil. Relatedly, the country has proposed a 5—7% cut in its oil production.

Furthermore, Chinese demand is expected to revive as pandemic restrictions end. This will certainly increase oil demand from the world’s largest oil consumer, although our research argues the country had not actually curtailed its energy consumption by anything near the 2 million barrels per day that some claimed. As such, the increase in demand is unlikely to approach that figure.

Providing something of a floor for price of oil, the U.S. Strategic Petroleum Reserve (SPR) now has a policy of purchasing oil to restore its depleted inventory (see next chart) when the price falls below $72 per barrel. The effect is not large enough to impose a hard floor on the price of oil, but it does provide some resistance at the level. Interestingly, the U.S. government has profited nicely in the timing of its SPR actions – selling at high prices and buying at lower prices.

U.S. Strategic Petroleum Reserve reaches multi-decade low

As of the week ending 12/30/2022. Source: Energy Information Administration (EIA), Macrobond, RBC GAM

Of course, exerting pressure on oil prices in the other direction – and ultimately providing a full counterweight to all of the upward forces – is the reality of a slowing economy and the prospect of demand destruction in a recession.

Crude oil stocks may be lower than normal in OECD nations, but the shortage is steadily disappearing (see next chart).

Global crude oil deficit is easing

As of November 2022. OECD commercial crude oil inventory less 5-year average of commercial stocks. Source: EIA, Macrobond, RBC GAM

Economic trends

The recent economic data has remained mixed – a descriptor used incessantly over the past quarter. North American employment measures continue to hold up, while measures of business activity are falling — in a few cases, sharply.

North American employment

The December job numbers were remarkably sprightly:

• U.S. payrolls grew by 223,000 workers in December. This is a good number in an absolute sense, a bit more than expected and with significant sector breadth.
• Unemployment accordingly fell back from 3.7% to 3.5%. That is a tie for the lowest reading this cycle.
• The household employment survey, which in recent months had tended to substantially undershoot the payrolls survey, did the opposite in recording a huge 717K net new jobs. Despite this, cumulative hiring over the past six months remains weaker according to the household survey.

For those looking for signs of weakness, one could observe that the rate of hiring in the payrolls survey was the weakest in two years despite it being perfectly adequate in absolute terms. It also extends a fairly steady deceleration. The fact that the unemployment rate has been roughly flat for several months is not a good sign, as unemployment rates rarely go sideways. When they do, it is usually a precursor to a significant increase. Widely-reported tech sector layoffs are now showing up in the official numbers. The sector experienced a net 5,000 job decline in payroll employment in December. Finally, although weekly initial jobless claims remain refreshingly low, continuing jobless claims are steadily edging higher, signaling all is not perfectly well in the labour market.

But for all of that, the figure that captured the greatest attention in the U.S. employment report was the fact that average hourly earnings decelerated from +0.6% month over month (MoM) in November to just +0.3% MoM in December. That takes the annual clip from an earlier peak of +5.6% year over year (YoY) to 4.6% YoY now. This was rightly interpreted by markets as reducing the risk that inflation remains elevated.

We recently conducted research into the sequencing of recessions relative to job losses (see next table). Since World War II, a recession usually arrives first, followed by job losses one to two months later. So we mustn’t expect job losses to precede any recession. That said, the rate of job creation usually falls below the normal pace around two months before a recession. This is a useful insight, and the fact that job creation is still in the realm of normal argues that a recession probably won’t begin for at least two more months.

Before recession, job creation tends to slow. After recession, job losses mount.

Source: Bureau of Labor Statistics, National Bureau of Economic Research, RBC GAM

Canadian employment, released the same day as the U.S., was strong from top to bottom. After a peculiar period earlier in 2022 when the country often recorded job losses, job creation has been quite good ever since. In December, a whopping 104,000 new jobs were added, most of which were full time. The unemployment rate is a low 5.0% and wages rose by 5.1% YoY. One might wonder whether construction employment can continue to rise at 35,000 jobs per month given a softening housing market.

Business weakness

There was more business weakness than strength in the latest round of economic data. The exception was Germany’s Bundesbank Weekly Activity Index, which rose while remaining below a normal level (see next chart).

Deutsche Bundesbank Weekly Activity Index approaches normal level

As of the week ending 01/08/2023. Weekly Activity Index estimates the trend-adjusted growth rate of economic activity by comparing the average over the past 13 weeks to the average of the preceding 13 weeks. Source: Central Bank of Germany (Deutsche Bundesbank), Macrobond, BC GAM

Conversely, the Institute for Supply Management (ISM) Manufacturing Index fell from 49.0 to 48.4. This re-emphasizes that the U.S. manufacturing sector is in slight decline (a <50 reading). New orders fell from 47.2 to 45.2, though the employment component rose from 48.4 to 51.4 – a position of slight growth.

What was more startling was the collapse of the ISM Services Index. It fell from 56.4 – a good reading – to just 49.6. The latter suggests the service sector of the economy is now also in slight decline. That is the first sub-50 reading since May 2020. Within the ISM Services Index, new orders fell by nearly 11 points to 45.2 and employment dipped below the all-important 50 threshold. In turn, one might argue that the entire private sector, goods and services both, are now potentially contracting in the U.S.

Unsurprisingly, American homebuilders continue to gnash their teeth at the sharp increase in interest rates. Even as the pace of monetary tightening has slowed, there is little evidence of a revival in housing sentiment (see next chart). This makes sense. While the ease of renegotiating one’s mortgage rate and the norm of a 30-year amortization period have provided a considerable buffer to existing American homeowners, those seeking to enter the market are confronted with some of the highest mortgage rates in the world, precisely due to the long 30-year duration.

U.S. home builder sentiment collapses

As of December 2022. Shaded area represents recession. Source: National Association of Home Builders, Macrobond, RBC GAM

On a related note, the demand for U.S. commercial and industrial loans has begun to turn lower for the first time in over a year (see next chart). This is perhaps a sign that higher rates are beginning to bite elsewhere as well.

Early sign of ebbing U.S. credit demand?

As of the week ending 12/28/2022. Source: Federal Reserve, Macrobond, RBC GAM

In Canada, a real-time measure of business conditions declined quite sharply in recent weeks (see next chart). While it has historically weakened around Christmas in prior years, this decline is sharper and not connected to a COVID-19 lockdown – unlike last year (see next chart).

Business conditions in Canada soften

As of the week of 12/26/2022. Equal-weighted average of Business Conditions Index of Calgary, Edmonton, Montreal, Ottawa-Gatineau, Toronto, Vancouver and Winnipeg. Source: Statistics Canada, Macrobond, RBC GAM

Canadian GDP data is stale relative to this information, but nevertheless recorded a meagre 0.1% increase in October, with November tracking +0.1% as well. If December softened as the business conditions index hints, the fourth quarter was not a very good one for the Canadian economy.

Happy inflation trends

The inflation trend remains mostly happy, which is to say declining.

Eurozone inflation falls profoundly, though not broadly

Eurozone inflation for December fell from +10.1% YoY to 9.2% YoY in a single month. This was a substantial decline after the prior month’s tentative drop, further confirming the view that European inflation has indeed peaked.

However, as with elsewhere, core inflation has been slower to turn. This runs counter to theory, which has long stated that core inflation should be a slightly leading indicator for overall inflation, as opposed to the reverse. But, in the current context, it makes sense that the sequence is playing out in the opposite way.

It was overall inflation that first surged on the back of rising commodity prices and the like. So it makes sense that the unwinding occurs in the same sequence now that commodity prices and other forces are ebbing. As an illustration, gas prices have fallen. But it still takes time for this to be passed onto cheaper shipping costs. Then it takes more time again for wholesalers and then retailers to adjust their pricing in response to the dynamic.

With inflation still much too high and core inflation still not fully cooperating, the European Central Bank appears to be on a path of 50 basis point rate hikes in each of February and March.

Goods producers no longer worried about inflation

U.S. manufacturers have become much less worried about inflation, implying that they are no longer being hit by extraordinary increases in their input costs (see next chart). This isn’t just a return to normal. Manufacturers are about as unconcerned about rising prices as they have been in a decade. This hints that outright price declines could even be trickling down the supply chain, so consumers will eventually benefit.

Institute for Supply Management prices index suggests prices of goods are declining

As of 12/20/22. Source: Institute for Supply Management (ISM), Macrobond, RBC GAM

However, the decline in price worries for the service sector is much more tentative. This makes sense: consumers pivoted from buying goods to services over the past year, taking pressure off of manufacturers but not the service sector. It also makes sense in that declining commodity prices directly benefit goods producers, but only indirectly help service providers. Service sector inflation is far from fully resolved and so needs to remain a focus going forward.

U.S. wage growth

It can be difficult to sort out what is actually happening with U.S. wages. The conventional measure – annual average wage growth – has fallen nicely as detailed earlier (see next chart).

Wage growth of U.S. low-skilled workers is slowing

Limited-service restaurants as of November 2022, total private nonfarm as of December 2022. Source: BLS, Macrobond, RBC GAM

Conversely, the Atlanta Fed’s median wage measures continue to accelerate nearly unabated (see next chart). These measures are arguably superior in their construction, if less closely watched.

By other measures, wage growth is rising

As of November 2022. 12-month moving average of median wage growth. Source: Federal Reserve Bank of Atlanta, Haver Analytics

We largely resolve this disparity via a wage index of our own creation that combines these two measures alongside some others. This approach suggests that current wage growth is probably decelerating slightly but is still elevated, while wage expectations have fallen quite a lot (see next chart).

Wage pressure in U.S. is easing

As of December 2022. Composites constructed using wage growth measures and business intentions to raise wages. Shaded area represents recession. Source: Macrobond, RBC GAM

In assessing the danger that high wages may create a wage-price spiral, it is worth keeping in mind that wages are hardly leading the charge. To the contrary, they are both undershooting and lagging the consumer price index (see next chart).

Both inflation and wages show sign of cooling in the U.S.

As of November 2022. Average of year-over-year percent change of six different measures of wage growth. Source: BLS, Federal Reserve Bank of Atlanta, Haver Analytics, RBC GAM

Canadian inflation less cooperative

In contrast to declining inflation concerns in the U.S. and Eurozone, Canada is still waiting for a big drop to arrive. This failed to arrive in November. The Headline Consumer Price index (CPI) slipped from 6.9% YoY to 6.8% YoY, but that was it. Inflation ex food and energy actually edged higher, from 5.3% YoY to 5.4% YoY. So did two of the Bank of Canada’s three special core inflation metrics.

Canada remains in the curious position in which central bank rate hikes have technically pushed the inflation rate higher in one narrow sense: the cost of paying interest on one’s mortgage rises, which is explicitly factored into Canadian CPI. This factor represents less than 3% of the price basket and so hardly outweighs the dampening effect that rate hikes have elsewhere on inflation. But the effect isn’t trivial, and it has now increased by 14% YoY, the fastest rate of increase since 1983.

Fortunately, the same downward forces should apply to Canadian inflation as elsewhere: easing supply chain woes, reversing commodity prices, tightening monetary policy and less fiscal largesse should all help over the coming year. A measure of real-time Canadian inflation also argues that Canadian inflation can be expected to decline substantially in the future.

But with the strength of November CPI, the Bank of Canada will presumably have to raise its policy rate at the next opportunity, to a minimum of 4.5%.

Japanese inflation marches to its own drummer

Japanese inflation actually continued to accelerate in November, with CPI up to 3.7% YoY – quite an achievement for a country long mired in deflation (see next chart). That is largely how the Bank of Japan views the situation: as an opportunity to escape from structurally low inflation, rather than as a threat to price stability. The next key indicator will be the country’s spring wage settings, which will inform the extent to which higher inflation maps onto wages and can thus become self-reinforcing (in a good way, from Japan’s perspective). Expectations are robust.

Inflation in Japan surges though still low versus other developed countries

As of November 2022. Consumer Price Index (CPI) adjusted to exclude the effect of sales tax hikes. Source: Bank of japan, Ministry of Internal Affairs and Communication, Macrobond, RBC GAM

Still, the Bank of Japan has not held entirely still. Late last year, the liquidity of the Japanese government bond market had deteriorated so much (and the yen had fallen so far) that the Bank of Japan broadened its yield curve control range for the 10-year government bond. The 10-year yield immediately leapt higher (see next chart) and the distortions in the country’s bond market diminished slightly. The central bank insists this is not monetary tightening. But between higher rates and a higher yen, it indisputably amounts to tighter financial conditions.

Bank of Japan tweaks yield-curve control policy as global rates rise

As of 12/30/2022. Source: Bloomberg, RBC GAM

The situation remains fraught with danger.

• Will the bond market, having arguably forced the Bank of Japan’s hand once, do it again – pushing the effective Japanese policy setting higher again?
• To what extent would rising rates prove a significant burden for Japanese financial institutions that have gorged on Japanese government bonds?
• To what extent will the enormous pool of Japanese money invested internationally (seeking superior returns to the paltry rates normally on offer in Japan) start to flow back to Japan, depriving the rest of the world of liquidity and capital at a crucial moment?

As with many things, the most likely outcome is that disaster is averted. But this is not quite a certainty.  In the meantime, the world has transitioned from a situation in which nearly a third of global bonds were trading at a negative interest rate to one in which virtually none are (see next chart). This is surely a healthier position for the world’s bond market and its investors.

Share of bonds with negative yields dropped substantially, now almost zero

As of 01/05/2023. Percentage of bonds in Bloomberg Barclays Global Aggregate Bond Index trading at negative yields. Source: Bloomberg, RBC GAM

Revisiting productivity assumptions

We are on the record with the view that the pandemic experience should increase productivity due to giant advances in the way we work. This includes the ability to:

• Work and collaborate remotely (saving commuting time, business travel time and expenses, while improving communications).
• Conduct commerce online.
• Provide government services online.
• Foster greater automation as companies learned how to function without part of their workforce (initially because they were isolating at home or sick, and more recently because it has been difficult to attract workers).
• Provide health care and education over the internet.

We also believe productivity growth over the coming decades could be faster than it was over the post-financial crisis decade. This is in part because productivity growth in the past decade was unusually slow, but also because of favourable trends in the composition of capital expenditures and in the amount of research and development. Many exciting scientific advances are now occurring (most obviously in health care and artificial intelligence). In addition, China has now joined the developed world at the technological frontier and so is poised to begin diffusing new technologies back to the West.

Pitted against these favourable productivity forces were a range of negatives:

• Children did not learn as much as normal during the pandemic – a loss of human capital.
• An aging workforce tends to be less innovative.
• The rising concentration of businesses in many corporate sectors is a negative for productivity growth.

In our view these don’t provide a full offset to the positive forces, but they are considerable.

So what does the data show? It must be conceded that, lately, productivity growth has been abysmal. In fact, productivity actually declined in the U.S. and Canada in 2022 (see next chart). Other countries have been choppy and not very strong either. All things equal, this is not the productivity start that we had hoped for.

Productivity: pre-pandemic vs. pandemic

As of Q3 2022. Productivity measured as rolling 8-quarter annualized % change of the business sector total economy real output per hour of all persons. Shaded area represents U.S. recession. Source: NBER, Macrobond, RBC GAM

Fortunately, this is unlikely to be a permanent phenomenon and reflects pandemic-related distortions. Companies arguably laid off too many people early in the pandemic (and people who were disproportionately low-skilled), mechanically boosting productivity given that demand did not decline to the same extent. Companies have since been rebuilding their employment base and hiring lower skilled workers, with the opposite effect on productivity – the outright decline just discussed. One neutralizes the other, with the level of productivity merely returning to its prior trend (see next chart).

Labour productivity of developed countries is mostly back on trend

As of Q3 2022. Shaded area represents U.S. recession. Source: BLS, Statistics Canada, Eurostat, U.K. Office for National Statistics (ONS), Macrobond, RBC GAM

New workers also take some time to become efficient at their job, further dampening productivity growth in the short run. Some service-sector industries have also hired more than new levels of demand would seem to justify: these companies must expect demand to revive further in the future and are willing to tolerate a less productive workforce in the short run.

Historically, productivity growth has also been temporarily weaker than normal during periods of monetary tightening – a further factor of relevance in 2022 and 2023.

Given all of these special considerations, we retain the view that some productivity benefits should emerge from the pandemic, though it could take a number of years for this to become clear. Goldman Sachs estimates a theoretical one percentage point boost to U.S. productivity from the additional digitization induced by the pandemic.

U.S. political update

American politics are always interesting. Key recent developments include:

• The Republicans finally managed to agree upon a Speaker for the House of Representatives after 15 rounds of voting. But Kevin McCarthy is now on thin ice given the many concessions he was forced to make to the holdouts. Nevertheless, the House can now turn to legislative matters.
• The U.S. Senate balance became a bit more confusing. Just after the Democrats had won the Georgia run-off and thus secured a razor-thin 51 vote majority in the 100-person Senate, Democratic Senator Krysten Sinema opted to leave the Democratic Party. This doesn’t quite put the Senate into gridlock, for two reasons. First, in the event of a 50-50 vote, the Democratic Vice President casts the deciding ballot. Second, the Democratic Party doesn’t actually have 50 senators. Both Bernie Sanders and Angus King are registered independents who caucus with the Democrats. Sinema plans to do the same, meaning that her vote will mostly remain with the Democrats. But she no doubt hopes to wield additional power, and this complicates the Democrats’ plans.
• Congress managed to avoid a government shutdown at year-end by passing a $1.7 trillion spending bill that will keep the government largely funded through September. The debt ceiling will still need to be addressed around mid-year.

We tackled a number of metrics of societal health in the final MacroMemo of 2022. An item that was omitted was the rate of illegal immigration into the U.S. We examine that now.

After a decade of depressed illegal immigration, the rate appears to be soaring to an unprecedented extent based on the number of people being apprehended at the southwest U.S. border (see next chart). While most are from Mexico and Central America. However, Cuba is experiencing a larger exodus into the U.S. than during its famous out-migrations of 1980 and 1994 (though the U.S. recently changed its preferential laws for Cubans, making it harder for them to claim asylum). New rules also make it more difficult for Venezuelans to enter, reducing that flow.

The Supreme Court has maintained a pandemic-motivated rule that allows for the rapid rejection of apprehended illegal immigrants. A summit between the U.S., Mexico and Canada could hash out further solutions.

In the meantime, the extra population due to illegal immigrants who do make it across the border provides a considerable boost to U.S. population growth (see subsequent chart) and a small boost to GDP growth. However, this comes at the cost of a tighter housing market and lower wages for unskilled workers.

Apprehensions at U.S. southwest land border surge

As of fiscal year ending FY22 (September 2022). Apprehension refers to the physical control or temporary detainment of a person who is not lawfully in the U.S. which may or may not result in an arrest. Source: U.S. Customs and Border Protection, RBC GAM

Migration lifts U.S. population growth

As of 2021. Source: Our World in Data, RBC GAM

A few climate change figures

Carbon-dioxide emissions have tentatively flattened out at the global level. Developed-country emissions are in decline versus ongoing increases among emerging market nations. Remarkably, China has now passed the U.S. as top national emitter (see next chart).

Annual CO₂ emissions are shifting, with China becoming new leader

As of 2020. Source: Our World in Data, Macrobond, RBC GAM

Adjusting for population, the U.S. reclaims its unfortunate lead and other interesting trends emerge (see next chart). The decline in developed-world emissions is even clearer, though such emissions need to converge upon zero with haste if climate change targets are to be met. The European Union’s environmental superiority versus other developed countries becomes evident (though a milder climate and a lesser intensity of manufacturing and resource extraction inform some of this – it isn’t all about electric cars and solar panels).

Amazingly and somewhat alarmingly, China now emits more carbon dioxide per person than does the EU. Again, this is surely in part because China hosts many energy-intensive manufacturing processes as it produces products for the rest of the world, including Europeans. But China also has many coal-fired plants and its middle class is rapidly expanding.

CO₂ emissions per capita also growing rapidly in China

As of 2021. Source: Our World in Data, RBC GAM

-With contributions from Vivien Lee, Vanessa Adams and Aaron Ma