Omicron: Biden says new COVID-19 variant ‘not a cause for panic
President Joe Biden urged Americans to get vaccinated as he discussed the new variant omicron.
Associated Press, USA TODAY
The omicron coronavirus variant could have a moderate impact on the U.S. economy next year as it hurts consumer spending and worsens labor shortages and supply chain bottlenecks, intensifying already-high inflation, top economists say.
It’s too early to pinpoint how omicron will affect economic growth because scientists are just starting to assess the toll it could take on global health. It could be a nonfactor or, at worst, nudge the U.S. back into recession
But under one likely middle-ground scenario laid out by some top economists, the strain could be more infectious but not significantly more virulent than the delta variant. And it could lead to fewer government-imposed restrictions on businesses.
If that’s the case, omicron – or another similar variant – would cut economic growth next year by half a percentage point to 4.3% and lead to the creation of several hundred thousand fewer jobs, estimates Mark Zandi, chief economist of Moody’s Analytics.
That would be less than Moody’s projected growth of 5.5% this year – highest since the early 1980s – but still a historically strong figure as the nation continues to dig itself out of the pandemic-induced downturn.
The Dow Jones Industrial Average tumbled 905 points, or 2.5%, on Friday, largely on worries over omicron, but it closed up 236 points Monday before sliding again in mid-morning trading Tuesday.
“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Federal Reserve Chair Jerome Powell said in prepared testimony he was scheduled to deliver this morning before the Senate Committee on Banking, Housing, and Urban Affairs.
The variant may reduce the chances that the central bank will accelerate the winding down of its bond-buying stimulus to curtail inflation at a mid-December , says Tom Porcelli, chief economist of RBC Capital Markets.
Omicron was first discovered in South Africa last week, and Dr. Anthony Fauci, President Joe Biden’s chief medical adviser, said it would take about two weeks to get more definitive information on how easily it will spread, whether it causes more severe illness and how well vaccines protect against it.
But preliminary reports suggest that while omicron spreads more rapidly than delta, it may lead to less severe disease, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.
South African officials say about 90% of new cases in Gauteng province are caused by omicron, underscoring that the variant is easily transmissible. At the same time, the officials say, existing cases have been mild, though they’ve mostly been among young adults rather than more vulnerable older people, Shepherdson says.
Shepherdson also notes that Pfizer has said its new COVID-19 drug treatment, Paxlovid, is probably effective against a wide range of variants.
“If it is equally effective against Omicron, and production can be ramped up quickly … then Omicron will at worst trigger only a temporary interruption to the economic recovery, and markets will rebound,” Shepherdson wrote in a note to clients.
And even in his likeliest “downside scenario,” Goldman Sachs economist Daan Struyven assumes omicron “evades immunity against hospitalizations only slightly more than delta.”
New lockdowns seem unlikely
Meanwhile, the U.S. has become more adept at dealing with new variants as vaccination rates increase and Americans rely on strategies such as mask wearing and social distancing, rather than lockdowns, to minimize infections. About 80% of Americans over 12 have been fully vaccinated, according to the Centers for Disease Control and Prevention.
“We are broadly assuming that there will be new waves of infections but that each wave will be less disruptive to the health care system and economy than the previous one,” Zandi says.
“New lockdowns are unlikely, except in the worst-case scenario,” Shepherdson says.
Under Zandi’s most likely scenario, omicron or another variant will cause coronavirus infections to peak at 175,000 new cases a day – similar to delta and up from about 75,000 today – but result in fewer hospitalizations and deaths. As a result, he expects it to shave growth by a half percentage point in 2022, compared with the 1.2 percentage point delta-triggered drop in growth this year.
Goldman Sachs’ Struyven similarly estimates global economic growth could be cut by 0.4 percentage points to 4.2% in 2022.
Here’s why the U.S. economy could take a hit:
Consumer spending
Outlays may slow as household once again visit restaurants and stores less frequently and cut back on travel.
Worker shortages
The labor deficit could worsen as employees continue to stay on the sidelines out of fears of catching the variant or to care for children who are distance-learning from home.
Supply chain snags
The bottlenecks, which already have hindered product deliveries, could intensify as it becomes even tougher to hire truck drivers, along with warehouse and dock workers.
Inflation
The worker shortages and supply snarls could keep consumer prices higher. While Zandi expects the annual increase in the consumer price index to fall from a 31-year high of 6.2% in October, a new variant could keep inflation elevated at 3.75% in 2022, compared with 3.6% otherwise.
Struyven says inflation for services like dining out could fall as consumers stay home more but prices for goods like TVs and computers may spike further, leaving “an ambiguous” impact on inflation.
Trade deficit
Because omicron likely would lead to more lockdowns and economic pain in Europe, the U.S. trade deficit could widen as Americans buy more imports while overseas consumers purchase fewer U.S. exports. A bigger trade gap means less growth.
Of course, economists say omicron could lead to a less likely doomsday scenario if it evades the immunity provided by vaccination and prior infection and results in more severe disease.
“Under those conditions, the next few months would be extremely difficult, with anti-COVID measures being reimposed in order to prevent a meltdown of the health care system,” Shepherdson says. “Spending on consumer services would collapse, payrolls would drop sharply, and the federal government would have to pass emergency measures in order to support people who lose their jobs.”
Goldman, however, also laid out an “upside” scenario in which omicron is slightly more transmissible but causes much less severe disease. That could leave more people immune to COVID-19 while benefiting global health and the economy.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
