Omicron is not Delta. The speed with which it spreads combined with a surge in flu other illnesses is shifting the dynamics of its impact on the economy. Fear of contagion and an aversion in-person events is no longer the primary determinant of economic losses.
Businesses, schools, doctors offices, theaters, retailers will have to go online and/or temporarily shutter as infections soar. The transportation system has already been stressed along with hospitals, which are short staffed due to burnout and the sheer number of staff out sick.
Government agencies are temporarily closing in some areas, while fire departments are reporting they don’t have enough staff to respond when needed. Online groceries have been overwhelmed with orders and wait times are ballooning for those who can afford the delivery charges.
It is hard to imagine a sector of the economy not affected, although it will clearly hit sectors where in-person work is essential harder. The gap between those who can work remotely and those who can’t will widen.
Employers, hoping to retain workers needed to reopen in an already tight labor market, will rely on paid and unpaid furloughs. Large tech retail behemoths will likely hold onto seasonal hires to cover for those out ill, but also could attract some workers temporarily idled.
Competition for workers will remain intense even as many are idled and temporarily out of work. Workers who want work will not be able to seek work either because they are sick or they are caring for someone who is sick, a young child or a child who is no longer in school.
The timing is particularly hard as the fiscal support to bridge COVID tainted waters has lapsed. A surge in saving should help support demand but it is not evenly distributed. Much of it is concentrated in the wealthiest households, who spend their incomes but not their saving.
Supply chains bottlenecks will worsen as factories in the US and abroad shutter. China’s zero tolerance policy on outbreaks is already hitting Vietnam hard. The push to clean the air via plant closures ahead of the Beijing Olympics will exacerbate those losses.
The @federalreserve has come to view variants as more inflationary than deflationary because of their impact on the supply of goods available. It is unclear that will hold given what could be a significant blow to demand as well. We can’t rule out a contraction in 1Q.
The silver lining is the speed with which Omicron peaked in South Africa, but that was accompanied by mitigation efforts and much warmer weather. We are more likely to see rolling outbreaks in the US, which will create its own supply chain woes.
Moral of the story. The health of the economy is only as good as the health of its population. We could have chosen ways to bolster our collective health globally to limit variants but we did not and this is where we are. The result is costly in lives and livelihoods.
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