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Economic Indicators

Analysis-Omicron begins to leave mark on U.S. economy, but unlikely to derail it

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Analysis-Omicron begins to leave mark on U.S. economy, but unlikely to derail it
© Reuters. FILE PHOTO: People queue for a COVID-19 test as the Omicron coronavirus variant continues to spread in Manhattan, New York City, U.S., December 21, 2021. REUTERS/Andrew Kelly/File Photo

By Jonnelle Marte

(Reuters) – The fast-spreading Omicron variant of COVID-19 has started leaving an imprint on slices of the U.S. economy as some events are canceled or postponed, consumers cut back on restaurant dining and understaffed businesses shut down in some of the most-afflicted areas such as New York City.

But even as economists say the variant could be a drag on growth early next year, they caution it is too soon to gauge the mark that will be left by an iteration of the virus that may on balance prove less severe even if it is the most transmissible version yet in nearly two years of the pandemic. It also seems unlikely at this stage to prevent a second straight year of above-trend growth.

Preliminary data out Thursday from the U.K. government showed a 50-70% lower probability of an Omicron infection resulting in hospitalization than with the Delta variant. That followed a study on Wednesday from South Africa, where Omicron was first identified last month, that suggested infections peaked quickly there and symptoms were less severe.

Nonetheless, Mark Zandi, chief economist for Moody’s (NYSE:) Analytics, expects the U.S. economy to take a hit in the near term from a surge that could infect more people than earlier waves but end more quickly. He now forecasts the U.S. economy will grow by 2% in the first quarter of 2022, down from 5%.

“Omicron is already affecting people’s behavior and business practices,” said Zandi, pointing to a decline in credit card spending over the past several weeks.

Credit card balances were fractionally lower in the week ending Dec. 8, marking the first time since October that they didn’t increase week over week, according to the Federal Reserve.

Consumers are also cutting back on trips to restaurants as the virus spreads. The number of diners seated at U.S. restaurants was down 10% for the week ending Dec. 23 when compared with the same week in 2019, according to the restaurant reservations site OpenTable. That is lower than Nov. 25, when dining activity was on par with 2019 levels.

“The situation is changing rapidly and this is far from the resurgence many restaurants were counting on this holiday,” Debby Soo, chief executive of OpenTable, said in a statement to Reuters.

Still, other parts of the economy appeared to be running as usual for now.

The number of Americans filing new claims for unemployment benefits held below pre-pandemic levels last week. And while workplace activity declined slightly last week after rising earlier in December, it was in line with the drop seen heading into the holidays in 2019 and stronger when compared to the same time last year, said Dave Gilbertson, vice president of the payroll management firm UKG.

“So far, we haven’t seen widespread business shutdowns, and customer demand remains strong across industries,” Gilbertson said in an email.

And Americans by and large seemed more committed to their holiday travel plans. The number of people checked through airport security in the approach to Christmas is roughly double last year’s volumes, Transportation Security Administration data showed. Wednesday’s total exceeded the comparable 2019 level by about 144,000 passengers, one of only a handful of days so far to top pre-pandemic levels and by the largest margin yet.

TOO EARLY TO KNOW

Some analysts say it may just be too soon for the effects of Omicron to show up in economic reports.

Consumer sentiment improved in December but Richard Curtin, director of the University of Michigan’s Surveys of Consumers said “too few interviews” were done to capture the impact of the Omicron variant.

“Confidence and spending are likely to be depressed in January, but it is too early to know the eventual impact of Omicron on the economy,” Curtin said in a statement on Thursday.

Some economists are downgrading their forecasts for how much the U.S. economy and the labor market will grow early next year amid a surge in infections and a decline in fiscal support.

Oxford Economics lowered its growth projections for next year to 4.1% from 4.4% because of the surge in infections, and says growth could slow to 3.7% if President Joe Biden’s Build Back Better spending plan is completely blocked. The package’s odds of passing dimmed after Senator Joe Manchin said he would not support the bill, but some analysts say a modified version of the bill could be approved later.

And Aneta Markowska and Thomas Simons, economists for Jefferies, earlier this week said economic activity is likely to soften in January, and they “see relatively high probability” the labor market could contract next month, similar to December 2020, if more businesses furlough workers because of the virus.

Biden announced new steps this week meant to stem the health and economic consequences of the infection surge, including new sites for testing and vaccination, more at-home rapid tests and an extension of the pause on student loan payments until May 1, 2022.

Zandi says that despite the slowdown he is expecting, growth could rebound quickly in the second quarter and the economy could expand by just over 4% next year. That would be almost double the annual growth rate that prevailed in the decade before the pandemic.

Economic Indicators

Money for Ukraine to top G7 agenda; inflation, food a concern

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© Reuters. FILE PHOTO: Service members of pro-Russian troops wait before the expected evacuation of wounded Ukrainian soldiers from the besieged Azovstal steel mill in the course of Ukraine-Russia conflict in Mariupol, Ukraine May 16, 2022. REUTERS/Alexander Ermoche

KONIGSWINTER, Germany (Reuters) – G7 financial leaders are likely to focus on Thursday and Friday on how to help Ukraine pay its bills, with reconstruction after the war, surging global inflation, climate change, supply chains and the impending food crisis also high on the agenda.

Finance ministers and central bank governors of the United States, Japan, Canada, Britain, Germany, France and Italy – the G7 – will hold talks as Ukraine, invaded by Russia on Feb. 24, is struggling to fend off the attack.

The Ukraine war is a game-changer for Western powers because it forces them to rethink decades-old relations with Russia not only in terms of security, but also in energy, food and global supply alliances from microchips to rare earths.

“Ukraine is overshadowing these meetings. But there are other issues that must be discussed,” a G7 official, who asked not to be named, said, adding that debt, international taxation, climate change and global health were all up for debate.

Ukraine estimates its financial needs at $5 billion a month to keep public employees’ salaries paid and the administration working despite the daily destruction wrought by Russia.

Russia calls its actions in Ukraine a “special operation” that it says is not designed to occupy territory but to destroy its southern neighbour’s military capabilities and capture what it regards as dangerous nationalists.

The short-term financing package to be agreed by the G7 would cover three months of Ukraine’s needs.

The European Commission offered on Wednesday to provide up to 9 billion euros ($9.44 billion) in loans to Ukraine, financed from EU borrowing guaranteed by EU governments, to cover Kyiv’s needs until the end of June.

The Commission also proposed to set up a fund of unspecified size of grants and loans for Ukraine, possibly jointly borrowed by the EU, to pay for the reconstruction of the country after the war ends.

Some economists estimate the financial need for such a project to be between 500 billion euros and 2 trillion euros ($524 billion to $2.09 trillion), with estimates frequently changing depending on the length of the conflict and the scope of destruction.

With sums of that magnitude coming into play, the EU is considering not only a new joint borrowing project, modelled on the pandemic recovery fund, but also the confiscation of the now frozen Russian assets in the EU, as sources of financing.

Some countries like Germany, however, say that the idea, though politically interesting, would be on shaky legal grounds.

U.S. officials emphasise it is too soon to map out financing for a massive rebuilding plan for Ukraine. Washington wants the discussions to focus on meeting Kyiv’s immediate budget needs over the next three months.

“After all, these rebuilding needs are mostly a bit in the future,” a U.S. Treasury official said. “This is why we’re focused more on the budget needs of Ukraine in the next three months than about reconstruction, Marshall Plans and asset confiscation.”

($1 = 0.9550 euro)

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Economic Indicators

Australia boasts lowest unemployment since 1974 in nod for rate hikes

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© Reuters. FILE PHOTO – A worker pushes a trolley loaded with goods past a construction site in the central business district (CBD) of Sydney in Australia, March 15, 2018. REUTERS/David Gray

By Wayne Cole

SYDNEY (Reuters) -Australia’s unemployment rate stood at its lowest in almost 50 years in April as firms took on more full-time workers, a tightening in the labour market that will ratchet up pressure for further hikes in interest rates.

Figures from the Australian Bureau of Statistics on Thursday showed the jobless rate held at 3.9% in April, from a downwardly revised 3.9% in March, matching market forecasts.

Employment missed forecast with a rise of just 4,000, though that reflected a large 92,400 gain in full-time jobs being offset by a 88,400 drop in part-time work.

The fall in unemployment will be welcomed by Prime Minister Scott Morrison who has made jobs the clarion cry of his election campaign ahead of what is expected to be a close vote on Saturday.

It also strongly suggests the Reserve Bank of Australia (RBA) will lift interest rates again in June as it scrambles to contain a flare up of inflation to two-decade highs.

The central bank’s hike to 0.35% this month was the first since 2011 and markets are odds on it will move to 0.60% at its June 7 policy meeting.

So strong is the inflation tide globally that investors are wagering rates will rise to at least 2.5% by the end of the year, even if that threatens to cripple the economy.

So far, the labour market has withstood the pressure with employment rising by 381,500 in the past 12 months. Underemployment also fell to its lowest since 2008 and this rate has a close correlation to wages over time.

Wages, though, are still lagging, at least by the official measure which showed annual growth ticked up only slightly in the first quarter to 2.4%, half the pace of inflation.

However, surveys of businesses paint a different picture with more and more firms saying they are having to bump up pay to attract workers.

The RBA’s Board was particularly alarmed that firms were planning to pass on rising input and labour costs to customers, a sea change from the past decade when fierce competition kept prices restrained.

“The RBA has returned to a more forward-looking approach for labour costs amid much higher inflation, shifting on leading indications from liaison and the anticipated feed through of the still-tightening labour market to wages outcomes,” said Taylor Nugent, an economist at NAB.

He sees the central bank hiking by a quarter point at each of the next three monthly meetings.

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Economic Indicators

Australian jobless rate at lowest since 1974 in April

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on


© Reuters. FILE PHOTO – A worker pushes a trolley loaded with goods past a construction site in the central business district (CBD) of Sydney in Australia, March 15, 2018. REUTERS/David Gray

SYDNEY (Reuters) – Australia’s unemployment rate stood at its lowest in almost 50 years in April as firms took on more full-time workers, a tightening in the labour market that will ratchet up pressure for further hikes in interest rates.

Figures from the Australian Bureau of Statistics on Thursday showed the jobless rate held at 3.9% in April, from a downwardly revised 3.9% in March, matching market forecasts.

Employment missed forecast with a rise of just 4,000, though that reflected a large 92,400 gain in full-time jobs being offset by a 88,400 drop in part-time work.

The fall in unemployment will be welcomed by Prime Minister Scott Morrison who has made jobs the clarion cry of his election campaign ahead of what is expected to be a close vote on Saturday.

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