Omicron casts a shadow over pandemic economic recovery

Just as Americans and Europeans have been eagerly awaiting their most normal holiday season for a few years, the omicron variant has sparked a new wave of fear and uncertainty – for travelers, shoppers, party-goers and their savings in their homes. together.

The Rockettes have canceled their Christmas show in New York City. Some restaurants in London have emptied as commuters avoid the city center. Broadway shows cancel some performances. The National Hockey League has suspended its games until after Christmas. Boston plans to require diners, party goers and shoppers to show proof of vaccination to enter restaurants, bars and stores.

A heightened sense of anxiety began to erode the willingness of some people and businesses to continue as usual in the face of the extraordinarily contagious variant of omicron, which quickly became the dominant version of the virus in the United States.

READ MORE: Less than a month after discovery, Omicron now has 73% of COVID-19 cases in the United States

Other people, however, continue to travel, spend, and meet with other people as they normally do, albeit often with a cautious wait-and-see perspective. Air travel during the holidays remains robust. Many stores and restaurants continue to have strong sales. And omicron has yet to keep audiences away from movie theaters in droves. Last weekend, record audiences across all demographics flocked to theaters for the new “Spider-Man” movie.

“Cinema hasn’t been hampered by omicron yet,” said Steve Buck, chief strategy officer at EntTelligence.

At the same time, no one yet knows what the omicron will ultimately mean for the health of Western economies, which have suffered a wave of downturns and recoveries since the start of 2020.

“These changes continue to happen,” said Robin Brooks, chief economist at the Institute of International Finance. “How likely is it that sometimes we get a really nasty one?” No one has the slightest idea. This thing is mutating, and it’s very, very hard to tell. ”

Will Omicron cause epidemics in factories and ports, disrupt operations and worsen supply chain bottlenecks that have driven up prices and contributed to the highest US inflation in decades?

Will that mean people will fall back home and spend less on services – restaurant meals, concerts, hotel stays – which could weaken the economy but potentially defuse inflationary pressures?

Will plans to return white-collar workers to the office be put on hold indefinitely, further worsening the blow to downtown businesses in many cities?

READ MORE: Moms made it work during the pandemic, but at what cost?

Or will omicron turn out to be a hang-up that is barely slowing down what has become a surprisingly strong recovery from the short but intense pandemic recession?

Frightened by uncertainty and fear of worst-case scenarios, stock markets around the world sold for three days before rebounding on Tuesday.

“We don’t know if this is good or bad for growth or inflation over the medium term,” said Megan Greene, chief global economist at the Kroll Institute. “We just don’t have enough data yet. “

Unable to assess its long-term consequences, businesses, consumers and policymakers have struggled to respond to the omicron threat.

Danielle Ballantyne, a dietitian from Chicago, had planned to visit some stores and seek inspiration for holiday gifts. But as omicron spread, she abandoned the idea in favor of staying home and shopping online.

“From what I’ve heard on the news,” Ballantyne said, “omicron is more contagious. So I’m trying to be more selective in my destination in terms of large public spaces.”

At its stores in major cities like New York and Chicago, clothier Untuckit is reporting a 15% drop in traffic, similar to what it experienced when the delta variant began to spread last summer.

“It impacts people’s perceptions of comfort and safety and their willingness to go out,” said Aaron Sanandres, co-founder of the company.

As infections have spread, European countries have so far gone further than the United States, with restrictions ranging from a full lockdown in the Netherlands to indoor mask warrants. UK.

A theater in the west of England reimbursed $ 240,000 in tickets. Advantage Travel Group, which represents UK travel agents, said business – flights, cruises and package holidays – fell 40% in mid-December compared to the previous month. A restaurant in central Madrid absorbed cancellations of about half of its reserved space a week recently.

In London, city center restaurants are suffering as office workers stay at home.

“As soon as they say they are working from home it is completely drained,” said Sally Abe, chef at the Conrad Hotel in central London.

Britain on Tuesday announced it would provide £ 1 billion ($ 1.3 billion) in grants and other aid to help the hospitality industry survive omicron. The government has bowed to pressure from pubs, restaurants and other businesses whose revenues have plunged following public health warnings.

Since the pandemic struck nearly two years ago, it has imposed one economic challenge after another. The economies all but came to a halt when the virus struck early last year. In the United States, more than 22 million people have lost their jobs. Bars, restaurants and hotels were particularly devastated.

But record injections of government spending and ultimately the rollout of vaccines sparked a surprisingly powerful recovery, giving many households the confidence and the financial means to resume shopping. And it sparked optimism for the 2021 holiday season: In an updated forecast shortly before omicron became a serious threat, the National Retail Federation said holiday sales in the United States were on track for a record year.

There are now fears that omicron infections could further disrupt manufacturing and shipping, exacerbate delays in the supply chain, and keep inflation low. It could also increase the already intensified consumer demand for goods, which would exacerbate supply shortages.

“If everyone is afraid that going to a bar or a restaurant will take them to a hospital, they can continue to buy goods,” said Greene, the economist at the Kroll Institute. “So that could exacerbate the short-term trend and worsen inflation. “

On the flip side, she said, “if growth is really slowing (from the omicron), that should dampen inflation. “

There are other reasons to believe that the recovery may be slowing. In the United States, economic aid from federal spending and relief checks is fading. The Federal Reserve is reducing its economic support. The Chinese economy, the second in the world after the United States, is slowing down.

For now, the US bond market is signaling more concern about economic weakness than runaway inflation: the yield on the benchmark 10-year Treasury bond remains at historically low levels, below 1 , 5%.

Citing omicron and other factors, Oxford Economics lowered its estimate of US economic growth for the October-December quarter to an annual pace of 7.3%, from an earlier estimate of 7.8%.

READ MORE: Anxious restaurants like omicron, high food costs are taking their toll

“Omicron has been so rampant,” said Kathy Bostjancic, chief financial economist for Oxford in the United States. “And it hits in the high density areas of the northeast. We think it’s going to have a pretty big impact on economic activity. ”

That said, it’s also possible that the economy will prove resilient in the face of the latest challenge COVID has thrown at it. A retail traffic measurement shows that the new variant has made little difference, at least so far. For the week ended December 18, store traffic increased nearly 20% from the previous year, but down 23% from the same week the year before. pandemic of 2019, according to Sensormatic Solutions. For Black Friday which ended on November 27, sales were up 30% from last year.

Peter McCall, head of retail consulting at Sensormatic, noted that shoppers still go to retail stores, but now they prefer open-air malls and malls over closed malls.

Arnold Donald, CEO of Carnival Corp., the world’s largest cruise line, said this week that Carnival had experienced a “small spike” in cancellations, but predicted it would only prove to be a short-term mishap.

“The booking models are strong,” said Donald.

The same goes for traffic at some large retailers. Several hundred people lined up for the Toys R Us flagship store opening on Sunday at the American Dream Mall in East Rutherford, New Jersey.

“We were ready for a big day, but it was even more important than we thought,” said Yehuda Shmidman, co-founder of WHP Global, owner of Toys R Us.

Abt Electronics in Chicago says it’s enjoying a good holiday season so far, with sales up 10% from last year. But John Abt, co-chairman and grandson of the company’s founder, said he’s noticed omicron is changing the way some people buy. Although fewer customers are entering stores, the demand for curbside pickup is increasing.

It has also made changes to workers to prevent the spread of COVID: it forces them to stay at counters or warehouses where they work instead of jumping between workplaces.

“I am an optimist,” Abt said. ” I’m not worried. It’s life. And you have to roll with the punches. ”

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Wiseman reported from Washington, D’Innocenzio of Cape Cod, Massachusetts. AP writers Martin Crutsinger in Washington, Lindsey Bahr in Los Angeles and Kelvin Chan, Sylvia Hui and Danica Kirka in London contributed to this report.

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