Economics in the News – Feb. 19-25, 2024
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o An end of a pandemic-era policy that barred states from pushing people off Medicaid is threatening the financial stability of the US safety net. Health centers rely on Medicaid payments, along with federal grants to provide a financial cushion for the uncompensated care they give to uninsured patients. Medicaid care impacts roughly one in 11 people in the United States.
Medicaid enrollment has declined by an estimated 10 million, including four million children. Unless Congress reaches a funding agreement, nearly $6 billion for federally financed health centers, serving over 30 million people, mostly low income, could lapse in March. [The New York Times]
o Capital One announced its intention to acquire Discover Financial Services in a deal that would merge the two largest credit card companies in the United States. The deal is being valued at $35.3 billion and would be an all-stock transaction. Consumer advocates have pushed back against the deal, citing antitrust concerns.
By acquiring Discover, Capital One will gain access to a credit card network of more than 305 million, adding to its own base of more than 100 million customers. The four major networks in the United States include American Express, Visa, MasterCard, and Discover. As part of the transaction, Capital One will pay Discover shareholders a 26 percent premium based on the company’s closing price at the end of last week. The deal is expected to be finalized, pending regulatory approval in late 2024 or early 2025, with Capital One shareholders owning approximately 60 percent of the company. [The New York Times]
o Many AT&T customers had service interruptions on their cell phones, smartwatches and tablets last week. Despite initial fears of a potential cyberattack, the telecommunications company clarified that the outage was not due to a cyberattack. The issue initially started during routine overnight maintenance, with customers noticing service issues starting around 3 a.m. ET.
AT&T competitors Verizon and T-Mobile said that their networks were operating normally, but some customers had issues when calling or texting with those on other networks. Government agencies, including security agencies and regulators are examining what went wrong. AT&T announced on Sunday that it will credit the account of customers who were impacted by the outage with a $5 credit within the next two billing cycles. [The Wall Street Journal]
o While indicators have signified that several of the world’s largest economies dipped into recession at the end of 2023, the gulf between the United States and the next largest economy has widened. The United Kingdom is the latest economy to show that it shrank into a recession with its second consecutive quarter of contraction. Similar to Japan – who fell behind Germany to the fourth largest economy in the world – consumer spending in the UK declined over the second half of 2023 despite wage growth outpacing inflation for the first time in two years.
The growth numbers in Japan and the UK mirror weak economic conditions in much of Europe and China. Meanwhile, the strength of the US economy continues to surprise economists, who predicted the US to fall into a recession at the beginning of 2023. Consumer spending in the US remains resilient despite rising interest rates compared to the rest of the world. Economists forecast the growth gap to narrow some over the year, but it is expected to remain wide. [The Wall Street Journal]
o The COVID-19 rebound for restaurants has been slow with laggard growth in same-store sales across the industry throughout 2023. The reasons are higher costs and changing consumer eating habits that have consumers opting to save on food by cooking at home or to eat at less expensive restaurants.
Fast food chains across the United States have been boosted by Americans seeking less expensive options. As the most prevalent dining option in the United States, fast food chains have seen profit margins improve compared to sit-down, non-chain restaurants. In the United States, the change in price of a McDonald’s signature Big Mac has increased by 19 percent, that compares to a 32 percent price increase for the Big Mac in the United Kingdom and a 27 percent increase in South Africa. [Bloomberg]
