Hello. Today we look at the wave of illness that’s crimping America’s recovery, the week ahead in global economics, and how Omicron threatens to dent consumption in China.
Get Well Soon
With the omicron wave of the pandemic rapidly spreading across the U.S., the robust economic recovery is facing a new threat that policy makers have little control over: people calling in sick.
What started as a series of holiday flight cancellations as pilots and other staff fell ill or were forced into quarantine is becoming a reality in factories, grocery stores and ports and again testing supply chains, Shawn Donnan writes.
At Capital Economics, senior U.S. economist Andrew Hunter calculated that upwards of 5 million workers were forced to stay home last week alone.
Widespread absences are already constraining output, and several economists began the new year by downgrading their first-quarter forecasts.
Even if the hit is temporary, as most anticipate, the disruptions and closures are likely to slow the fragile rebound in some sectors and weigh on businesses’ future plans.
While economists and investors expect the impact to be short-lived, its magnitude may be sizable. Mark Zandi, chief economist for Moody’s Analytics, cut his first-quarter prediction for annualized gross domestic production to close to 2%, down from about 5%.
But he also raised his forecast for the second quarter, saying businesses and the economy are better prepared to face this new wave.
“I don’t expect the virus to sustainably subtract from economic growth on net this year,” Zandi said. Though omicron could, he said, affect how the Federal Reserve views the recovery and when it acts to raise rates.
The Week Ahead
U.S. inflation probably hit the fastest in four decades, helping explain a shift in the Fed’s approach to monetary policy as well as more consumer anxiety about the economy.
The widely followed consumer price index on Wednesday is forecast to rise 7.0% for the year through December and climb 0.4% from a month earlier.
The following day, another Labor Department report is projected to show prices paid to producers surged nearly 10% in 2021. Data on December retail sales and industrial production arrive Friday.
These indicators will follow Tuesday’s congressional confirmation hearing of Fed Chair Jerome Powell.
Elsewhere, inflation data may show weakening Chinese price pressures, Germany will give an indication of its growth in the last quarter of 2021, and South Korea is likely to keep tightening monetary policy.
Here’s the full rundown of the week ahead.
Today’s Must Reads
- Behind the curve | At this year’s annual meeting of the American Economic Association, prominent economists from both sides of the political spectrum argued that the Fed is behind the curve in the battle to contain inflation. Goldman Sachs now sees the Fed hiking four times.
- Hong Kong | Still pursuing a Covid-zero strategy, Hong Kong is facing tough new restrictions that will weigh on its economy.
- New York port | The Port of New York and New Jersey is working to clear a small, but rare bottleneck of container ships anchored off the coast of Long Island.
- Energy transition | The European Central Bank’s inflation forecasts may need to be revised upward because of the continent’s attempts to cut carbon emissions and transition to green energy, an official said.
- Sanctions worry | Concern among some big European nations about economic fallout raises the risk of a split with the U.S. on how strongly to hit Russia with fresh sanctions if it invades Ukraine.
Need-to-Know Research
Delta has been bad for China’s consumption; Omicron could be worse. That’s the warning from Bloomberg Economics.
The zero-tolerance policy on Covid-19 means any outbreaks are met with strong containment measures that stifle consumer spending.
“For consumption, this is a grim prospect,” write economists Chang Shu and Eric Zhu. They envisage two scenarios for consumption in the first half of 2022, depending on the spread of the latest outbreak and the extent of the actions to contain it, especially around the Lunar New Year:
- A benign case could see retail sales expanding 4% in 2022, down from an increase of about 13% in 2021 that was boosted by a low base.
- A more severe scenario could see a smaller rise of around 3.7% this year due to a bigger dent in spending during the Lunar New Year holidays.
- There could be upside to consumption if China relaxes the zero-tolerance policy.
On #EconTwitter
More from the American Economic Association’s annual meeting, where the Fed’s role in battling racism was also discussed…
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