Omicron most likely will not derail recovery

We still need more data to be sure, but early signs are positive

Happy New Year! I’m back to the normal schedule, with regular economic updates on Tuesdays and special topics commentary on Fridays.

I wanted to start the new year off by considering how the dramatic changes in public health we’ve experienced over the last few weeks are being reflected in the economic data.

First, let’s talk about Delta’s economic effects from last summer. The new variant (Omicron) is being compared to it, so the natural question is whether Omicron will have the same economic effects as Delta. It’s pretty clear that over the summer Delta halted labor market progress and it also hurt consumer spending, shown in the graph below. I also wrote about Delta’s economic impact in a few newsletter articles last summer, for example here (on the first signs of slowdown) and here and here (on the recovery in September).

From the graph, you see that the run-up in spending we saw with the vaccine rollout earlier last year was clearly pushed off course starting early-to-mid June 2021, as the new variant spread and slowed the recovery. When things started to look better in August/September, spending resumed its upward course through most of the rest of the year.

Will Omicron do the same damage? Sadly, consumer spending data from Affinity is still not available past mid-November, so it’s hard to be sure. But Delta was more deadly and possibly more contagious than Omicron, and there is no question that its symptoms were more severe. So my guess is that the economic effects Omicron will not be as bad, either.

Without the Affinity consumer spending data, the only major source of current information we have is on new claims for unemployment insurance, from the state’s EDD office. On that front, we have data from the last week of December. The 4-week average ticked upward slightly week-over-week, from 2,882 new claims (week of December 22) to 2,905 new claims (week of December 29), but that is a very small increase. While it does suggest a weakening labor market in late-December due to Omicron, it’s a very minor, almost unrecognizable change.

By most other measures, the holiday season shaped up to be very strong – the latest unemployment rate (for November, although not seasonally adjusted) came in at 5.4% for the Inland Empire, the lowest it’s been since the start of the pandemic – so hopefully Omicron will be remembered, at least economically, as simply a “blip” on the radar.