It seems like as soon as we’re recovering from Covid, another variant Omicron appears, causing us to readjust our lives once again. But more than just readjusting our social lives and to day-to-day activities, new variants are continuously putting a dent on the economy, forcing us to reassess our finances.
With the onset of the Omicron variant, the economy has taken a hit in a number of sectors. Airlines have canceled thousands of flights due to a shortage of flight attendants who have contracted the virus, restaurants have cut back on hours of operation again, among many others. According to OpenTable, a restaurant reservation site, the percentage of customers served at restaurants in the week of Dec 20th of 2021 was 10% lower than customers served in the same week in 2020.
But while chief economist Mark Zandi, who runs Moody’s Analytics, has acknowledged the financial setback, he is still optimistic about the near future. For a short period, “the U.S economy will be harmed by a rush that will afflict additional people than previous waves but will pass more swiftly” Zandi says. “Omicron is already affecting people’s behavior and business practices,” he continues, referring to how credit card usage has declined. Reuters has also echoed this stating that “credit card balances were fractionally lower in the week ending Dec 8, marking the first time since October that they didn’t increase week over week, according to the Federal Reserve.”
Despite the clear decline in credit card usage and other business halts, Zandi still expects this to pass over soon, unlike the first few waves of Covid. Zandi believes the U.S. market will recover by 2% in the first quarter of 2022, dropping from 5% throughout the prior quarter.
But not everyone agrees with Zandi. Jerome Powell, chairman of the Federal Reserve stated that “the recent rise in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation.” This is a stark difference from his comments when he was nominated for a second term as the chairman of the Federal Reserve (prior to Omicron). He expressed optimism in economic growth, saying that it will be the “fastest pace in many years.”
According to Oxford economics, they’ve in fact lowered growth projections for next year. Their original projection was 4.4%, but it is now 4.1% due to the rise in Omicron cases. Additionally, Aneta Markowska and Thomas Simons, economists for Jeffries, stated that “economic activity is likely to soften in January, and they see relatively high probability the labor market could contract next month, similar to December 2020, if more businesses furlough workers because of the virus.”
The Biden Administration has taken measures to combat the effects of Omicron. It has set up more testing and vaccination sites and facilitated at-home rapid tests. The U.S Postal Service actually ships up to four Covid tests per residential family. Additionally, Biden has also extended student loan payments to May 1, 2022.
Will this be enough to soften the economic blow? With these new provisions, economists like Zandi are hopeful that the economy can rebound and potentially see a steady economic growth of 4% into 2022. According to Reuters, “that would be almost double the annual growth rate that prevailed in the decade before the pandemic.”
