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.
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.
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…
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
