Inflation, Supply Crunch, and Omicron Push US Growth Forecasts Down

The U.S. economic forecast for the first quarter of 2022 looks dim, as high inflation, supply chain and labor disruptions, and Omicron slow down growth, according to the results from a survey conducted by the Wall Street Journal, of 69 business, academic, and financial forecasters.

Annual growth rate predictions for the first quarter have slid to 3 percent from 4.2 percent from earlier forecasts in October, according to experts interviewed by the WSJ.

The markets bounced back toward the end of last week, after having hit three-month lows.

Economists worry that the spread of the Omicron variant will damper consumer spending and exacerbate labor and supply chain shortages as workers call out sick.

Earnings reports are expected to be the main market movers in the United States this week, given that Federal Reserve policymakers will not be making any public comments ahead of next week’s interest-rate decision.

The current labor shortage is expected to lead to an increase in wages over the next few months, as employers offer higher pay, benefits, and other sweeteners to retain and hire staff.

Economists are expecting average hourly earnings to be up 4.9 percent from a year earlier last June, as hourly earnings rose 4.7 percent in December.

Wage inflation is expected to stabilize at a yearly increase of 4.5 percent in average hourly earnings by the end of 2022.

It is expected that workers will experience annual wage increases of roughly 4 percent for the best part of the next two years.

As the labor market enjoys a robust recovery, analysts are concerned about the Fed not raising interest rates fast enough to keep up with rapidly rising prices, which have picked up sharply since last spring.

A Labor Department report last week, had consumer prices rise 7 percent in December from the same month a year earlier, up from 6.8 percent in November and the third straight month it exceeded 6 percent.

The Federal Reserve is facing increasing pressure to tame inflation, with prices hitting their highest rate increases in nearly four decades.

The central bank cut interest rates to near zero and bought bonds to lower long-term rates at the beginning of the pandemic in 2020.

The coronavirus and global lockdowns that followed caused financial market volatility, unemployment, and a year-long recession.

Fed policymakers are expected to aggressively start raising short-term interest rates this spring after its March 15–16 policy meeting and keep raising them over the course of the year, risking a recession.

Over half of analysts expect at least three rate increases this year, while nearly a third expect more than three after differing opinions from Fed board governors.

Economists expect annual inflation to moderate in June, but up substantially from last year, as measured by the consumer price index.

Inflation is expected to cool further to just above 3 percent at the end of the year, up from last quarter’s forecast of 2.6 percent.

The supply chain issues remain a factor in inflation, as bottlenecks are expected to continue in China due to the lockdowns caused by CCP virus variants, which have led to disruptions at ports and factories.

More than half of economists surveyed by the WSJ expect supply-chain disruptions to persist at least until the second half of this year, with a third expecting them to continue until 2023 or later.

Global markets trended up on Monday, while U.S. markets were closed for the MLK holiday, leaving investors to pour over Chinese economic data.

The awaited fourth-quarter earnings reports for 2021 are due on Jan. 18.

From The Epoch Times