Analysis: Omicron begins to mark U.S. economy, but unlikely to derail

People line up for a COVID-19 test as the Omicron coronavirus variant continues to spread in Manhattan, New York, United States, December 21, 2021. REUTERS / Andrew Kelly / File Photo

December 23 (Reuters) – The rapidly spreading Omicron variant of COVID-19 has started to leave a mark on slices of the US economy as some events are canceled or postponed, consumers cut restaurants and businesses under – Workforce have closed in some of the worst affected areas like New York.

But even though economists say the variant could be a drag on growth early next year, they warn it is too early to assess the mark that will be left by an iteration of the virus that could overall turn out to be less serious even if it is the most transmissible version yet in nearly two years of the pandemic. It also seems unlikely at this point to prevent a second consecutive year of above-trend growth.

Preliminary data released by the UK government on Thursday showed a 50-70% lower chance of Omicron infection resulting in hospitalization than with the Delta variant. This followed a study in South Africa on Wednesday, where Omicron was first identified last month, which suggested infections peaked there quickly and symptoms were less severe. Read more

Still, Mark Zandi, chief economist at Moody’s Analytics, expects the U.S. economy to be hit in the near term by a surge that could infect more people than previous waves, but end sooner. He now forecasts that the US economy will grow by 2% in the first quarter of 2022, up from 5%.

“Omicron is already affecting people’s behavior and business practices,” Zandi said, noting a drop in credit card spending in recent weeks.

Credit card balances were slightly lower in the week ending Dec. 8, marking the first time since October that they haven’t increased week-over-week, according to the Federal Reserve.

Consumers are also reducing their trips to restaurants as the virus spreads. The number of diners seated at U.S. restaurants was down 10% for the week ending December 23 from the same week in 2019, according to restaurant reservation site OpenTable. This is less than on November 25, when restaurant activity was comparable to 2019 levels.

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

Yet other sectors of the economy seemed to be functioning as usual for the time being.

The number of Americans filing new unemployment benefits claims has remained below pre-pandemic levels last week. And while workplace activity edged down last week after increasing earlier in December, it was in line with the decline seen as the holidays approached in 2019 and larger compared to the same period l ‘last year, said Dave Gilbertson, vice president of the payroll management company. UKG.

“So far, we have not seen widespread business closures and customer demand remains strong across all industries,” Gilbertson said in an email.

And Americans on the whole seemed more attached to their vacation travel plans. The number of people screened by airport security heading into Christmas is roughly double the volumes last year, according to data from the Transportation Security Administration. Wednesday’s total surpassed the comparable 2019 level of around 144,000 passengers, one of the few days so far to reach the higher pre-pandemic levels and with the largest margin to date.

TOO TT TO KNOW

Some analysts say it may be too early for Omicron’s effects to show up in economic reports.

Consumer confidence improved in December, but Richard Curtin, director of consumer surveys at the University of Michigan, said “too few interviews” had been conducted to capture the impact of the Omicron variant. .

“Confidence and spending will likely be depressed in January, but it’s too early to know what impact Omicron might have on the economy,” Curtin said in a statement Thursday.

Some economists are lowering their forecasts for the growth of the US economy and labor market early next year amid rising infections and declining budget support.

Oxford Economics has lowered its growth projections for next year to 4.1% from 4.4% due to the surge in infections, and says growth could slow to 3.7% if the spending plan Build Back Better from President Joe Biden is completely stuck. The package’s chances of success diminished after Senator Joe Manchin said he would not support the bill, but some analysts say an amended version of the bill could be approved later.

And Aneta Markowska and Thomas Simons, economists for Jefferies, said earlier this week that economic activity is expected to slow in January, and they “see a relatively high probability” that the labor market could contract next month, as in January. December 2020, if more companies put workers on leave. because of the virus.

Biden this week announced new measures aimed at stemming the health and economic consequences of the spike in infections, including new testing and vaccination sites, more rapid home tests and an extended hiatus on loan payments. students until May 1, 2022.

Zandi says that despite the slowdown he expects, growth could rebound quickly in the second quarter and the economy could grow just over 4% next year. This would be almost double the annual growth rate that prevailed in the decade leading up to the pandemic.

Report by Jonnelle Marte; Editing by Dan Burns and Andrea Ricci

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