ANALYSIS-Omicron is starting to leave its mark on the US economy, but it’s unlikely to derail it
Band Jonnelle Marte
December 23 (Reuters) – The fast-spreading Omicron variant of COVID-19 has begun to leave its mark on slices of the US economy as some events are canceled or postponed, consumers cut back on restaurant meals and understaffed businesses close in some of the most affected regions such as New York City.
But even though economists say the variant could dampen growth early next year, they warn it’s too early to assess the mark that will be left by an iteration of the virus that could, overall, s turn out to be less severe even though it is the most transmissible version yet in nearly two years of the pandemic. It also seems unlikely at this stage to prevent a second straight year of above-trend growth.
Preliminary data released by the UK government on Thursday showed a 50-70% lower chance of an Omicron infection resulting in hospitalization than with the Delta variant. This followed a study on Wednesday in South Africa, where Omicron was first identified last month, which suggested infections had peaked rapidly there and symptoms were less severe.
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 faster. He now expects the U.S. economy to grow 2% in the first quarter of 2022, up from 5% previously.
“Omicron is already affecting people’s behavior and business practices,” Zandi said, pointing to 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 have not 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 in U.S. restaurants was down 10% for the week ending Dec. 23 compared to the same week in 2019, according to restaurant reservations site OpenTable. That’s less than Nov. 25, when restaurant activity was on par with 2019 levels.
“The situation is changing rapidly and it is far from the resurgence that many restaurants were counting on this holiday,” Debby Soo, chief executive of OpenTable, said in a statement to Reuters.
Still, other parts of the economy appeared to be operating as usual for the time being.
The number of Americans filing new claims for unemployment benefits remained below pre-pandemic levels last week. And although workplace activity fell slightly last week after rising earlier in December, it was in line with the decline seen ahead of the holidays in 2019 and stronger compared to the same period l last year, said Dave Gilbertson, the company’s vice president of payroll management. UKG.
“So far, we have not seen widespread business closures and customer demand remains strong across all sectors,” Gilbertson said in an email.
And Americans overall seemed more committed to their vacation travel plans. The number of people screened by airport security in the run-up to Christmas is roughly double last year’s volumes, 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 to date to reach pre-pandemic levels and by the largest margin yet.
TOO EARLY TO KNOW
Some analysts say it may be too soon for the effects of Omicron to show up in economic reports.
Consumer sentiment 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 will have on the economy,” Curtin said in a statement Thursday.
Some economists are revising down their forecasts for growth in the US economy and labor market early next year amid rising infections and falling fiscal support.
Oxford Economics has lowered its growth projection for next year to 4.1% from 4.4% due to the spike in infections, and says growth could slow to 3.7% if the Build Back spending plan Better by President Joe Biden is completely blocked. The package’s chances of success dimmed after Sen. Joe Manchin said he would not support the bill, but some analysts say a modified version of the bill could be approved later.
And Jefferies economists Aneta Markowska and Thomas Simons said earlier this week that economic activity is expected to slow in January, and they “see a relatively high likelihood” that the labor market will contract next month, similar to December. 2020, if more companies furlough workers. because of the virus.
Biden announced new measures this week to stem the health and economic fallout from the surge in infections, including new testing and vaccination sites, more rapid home testing and an extended pause on loan repayments. students until May 1, 2022.
Zandi says that despite the slowdown it expects, growth could rebound quickly in the second quarter and the economy could grow by just over 4% next year. That would be nearly double the annual growth rate that prevailed in the decade before the pandemic.
(Reporting by Jonnelle Marte; Editing by Dan Burns and Andrea Ricci)
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