A one-two punch for the US economy | CNN Business (2024)

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The outlook for the American economy is suddenly much darker.

Investors around the world sold stocks and oil prices dropped sharply on Monday as Omicron cases surged and governments imposed anti-virus measures that could hamper economic growth.

But the US faces a second potential blow after Sen. Joe Manchin, a Democrat, said on Sunday that he will not vote for President Joe Biden’s economic and climate plan.

Dow futures fell 370 points — or more than 1% — by 6:45 a.m. ET on Monday, while benchmark Brent crude was down about 3% at $71 a barrel. Major stock market indexes in Europe and Asia fell by around 2%.

“Global markets are pricing in … greater growth concerns on the back of the weekend’s Omicron-related news. Dimmed prospects for the US fiscal package may also be playing a role,” Mohamed El-Erian, chief economic adviser at Allianz, said Monday on Twitter.

For an Omicron preview, look to Europe: The Netherlands is under a strict lockdown. In the United Kingdom, the government has asked people to work from home and it has not ruled out further restrictions before Christmas. Germany, Denmark and Ireland are also taking steps to stem the variant.

“Even if booster shots are effective at reducing the medical risks, a rapid spread of Omicron could still overburden health systems and force countries to follow the Netherlands and adopt more economically damaging restrictions,” said Berenberg chief economist Holger Schmieding.

If that were to happen, the eurozone and the United Kingdom could both see their economies shrink by 1% in the first quarter of 2022, compared with the final three months of this year, he added. Germany, the region’s biggest economy, is already teetering on the brink of recession.

The United States may only be a few days or weeks behind Europe. “It’s going to take over,” Anthony Fauci, the nation’s top infectious disease expert, said of Omicron on CNN’s “State of the Union.”

The fast-spreading variant threatens to add pressure to already stretched supply chains and exacerbate inflation. If US consumers cut back on shopping, dining out and travel, that could also hurt the economy.

Biden has been pushing a $1.75 trillion bill that includes initiatives like universal pre-K for 3- and 4-year olds, child care assistance and child tax credits, and a federally funded paid family and sick leave program.

To get the Build Back Better Act through Congress, Biden needs Manchin’s vote. But the West Virginian has balked at the legislation’s price tag, and expressed concerns that it may add fuel to already soaring inflation.

Still, most analysts expected Manchin to eventually support the bill. That now appears to be a miscalculation.

Goldman Sachs told clients Sunday it no longer assumes the legislation will get through Congress after Manchin announced that he’s a “no.”

“A failure to pass BBB has negative growth implications,” Goldman Sachs economists, led by Jan Hatzius, said in the research report.

Citing the “apparent demise” of Build Back Better, the Wall Street bank now expects GDP to grow at an annualized pace of 2% in the first quarter, down from 3% previously.

Goldman Sachs also trimmed its GDP forecasts for the second quarter to 3% from 3.5% and the third quarter to 2.75% from 3%. It pointed to the expiration of the child tax credit and the lack of spending in other areas that had been anticipated.

For investors, the wave of bad news could mean a rough end to 2021.

“It’s a lot more like Halloween than Christmas,” Societe Generale analyst Kit Juckes wrote in a research note Monday.

The world’s second biggest economy is cutting rates

China’s central bank cut its main interest rate for the first time in 20 months, as authorities step up efforts to boost an economy that has been hit by pandemic-related curbs, a real estate slump and an unprecedented crackdown on private enterprise.

The People’s Bank of China on Monday lowered its one-year loan prime rate (LPR) by 5 basis points to 3.8%, reports my CNN Business colleague Laura He. The LPR is the rate at which commercial banks lend to their best customers and it serves as the benchmark rate for other loans.

While Monday’s rate cut is small, it’s the first such move since April 2020, when China slashed the LPR to boost its Covid-hit economy, which had just contracted for the first time in more than 40 years.

“The cut reinforces our view that authorities are increasingly open to cutting interest rates amid looming economic headwinds,” said Zhaopeng Xing, senior China strategist at ANZ, in a research note on Monday.

A cut to the lending rate can help reduce borrowing costs for households and firms and in turn encourage consumer spending and investment.

Unlike the West, Beijing had refrained from flooding the economy with stimulus packages during the pandemic, focusing instead on offering targeted support to smaller businesses.

China was the only major economy to record growth in 2020, but this year the country’s expansion has been hit by several factors, forcing it to consider ways to provide support even as other major central banks withdraw stimulus and raise interest rates to fight inflation.

Flashback: Last week, the Bank of England became the first major central bank to raise interest rates since the start of the pandemic. The US Federal Reserve could follow with three rate hikes next year.

Spider-Man could be the biggest box office hero of the year

There is a small glimmer of hope for movie theaters.

“Spider-Man: No Way Home,” the latest Spider-Man adventure from Sony and Marvel, opened over the weekend, and is set to become the biggest opening of the year by a large margin, reports my CNN Business colleague Frank Pallotta.

It’s projected for a $130 million opening weekend in North America, according to industry expectations. The movie brought in $50 million on Thursday night — that’s the third biggest Thursday opening ever.

It’s a remarkable milestone in a pandemic, and it signals “No Way Home” will likely become the only film of the Covid era to open to a more-than-$100-million opening weekend. That number may be even severely low-balling the film’s totals, according to some analysts.

AMC Theatres’ stock soared 20% following the news of Thursday’s stellar preview. But with Omicron cases on the rise, the relief may be short lived.

“It means everything to theaters right now,” Shawn Robbins, chief analyst at Boxoffice.com, told CNN Business. “We’ve consistently pointed to how important each big movie has been for cinemas and studios throughout the pandemic this year, but ‘No Way Home’ is the most significant from a box office perspective so far.”

Up next

Nike and Micron report earnings after the closing bell.

Coming tomorrow: Earnings from General Mills, Rite Aid and BlackBerry.

A one-two punch for the US economy | CNN Business (2024)

FAQs

Is the US a mixed economy answer key? ›

The United States has a mixed economy. Its economic system functions with characteristics of both capitalism and socialism. A mixed economic system protects some private property and allows a level of economic freedom in the use of capital.

What are two major economic goals of the US? ›

The Federal Reserve works to promote a strong U.S. economy. Specifically, Congress has assigned the Fed to conduct the nation's monetary policy to support the goals of maximum employment and stable prices. Those two goals are often referred to as the Fed's "dual mandate."

What is the threat to the US economy? ›

The biggest danger facing the American economy for years has been inflation. Now, another problem is emerging as a credible threat on the horizon: Unemployment. Just as inflation continues to cool, yellow lights are flashing in the still-strong jobs market.

What is the US economy driven by? ›

U.S. economy shows strong 2.8 percent growth, driven by consumers and businesses. WASHINGTON (AP) — The nation's economy accelerated last quarter at a strong 2.8 percent annual pace, with consumers and businesses helping drive growth despite the pressure of continually high interest rates.

Is the US a mixed economy quizlet? ›

The U.S. economy is considered a "mixed market economy" because its economy has elements of all three main economic systems.

What is mixed economy answers? ›

A mixed economy is an economy organized with some free-market elements and some socialistic elements; it lies on a continuum between pure capitalism and pure socialism. Mixed economies typically accept private ownership of most means of production, with some government intervention, mainly through regulations.

What is the biggest problem in the US economy? ›

Changes in views of the country's top problems. Inflation ranked as the country's top issue in Pew Research Center surveys from 2023 and 2022, though its perceived importance is lower than it was in 2022. Today, 62% of Americans say inflation is a very big problem, down from 70% in 2022.

What were the 3 main weaknesses of the US economy? ›

Economic powerhouse:

However, the U.S. also has its weaknesses. Income inequality is the highest among its peers, politics and society at large are bitterly polarized, and the fiscal position is weak.

What is the biggest risk to the economy? ›

Here are three risks the World Bank sees.
  • High interest rates. The group expects global inflation to slow to 3.5% this year and 2.9% in 2025 but fall at a more sluggish pace than it expected six months ago. ...
  • Geopolitical tensions. ...
  • Politics.
Jun 13, 2024

Who controls the US economy? ›

The U.S. central banking system—the Federal Reserve, or the Fed—is the most powerful economic institution in the United States, perhaps the world. Its core responsibilities include setting interest rates, managing the money supply, and regulating financial markets.

Which country has the best economy in 2024? ›

In 2024, the United States had the largest economy in the world, with a gross domestic product of just under 29 trillion U.S. dollars. China had the second largest economy, at around 18.5 trillion U.S. dollars.

How is the US economy doing right now? ›

Real gross domestic product (GDP) increased at an annual rate of 2.8 percent in the second quarter of 2024, according to the "advance" estimate. In the first quarter, real GDP increased 1.4 percent.

Is the USA a mixed economy? ›

Created by the United States Constitution, the U.S. has a mixed economy, meaning that it combines elements of the command and market economic models. In terms of consumer goods and business services, the United States economy operates as a free market.

What is an example of the US as a market economy? ›

Countries like the United States, Japan, and the UK are examples of market economies. In these market economy countries, individuals own most of the resources. Their economies are not controlled or regulated by a central authority. Instead, the forces of demand and supply influence the core market activities.

Which country uses a mixed economic system? ›

Countries like the United States, United Kingdom, Germany, France, Russia, and China currently have mixed economies.

What are the characteristics of the US economy that make it a mixed economy instead of a pure market economy? ›

The most important features of America that make it a mixed economy rather than capitalist are a big government created central bank manipulating interest rates and the supply of government issued, legal tender fiat paper monopoly money, heavy regulation and massive government spending.

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