WASHINGTON — The US economy was roaring back to life early this summer until the Delta variant of the coronavirus tapped the brakes on hiring and overall growth. Now, as the nation was emerging from that slowdown just in time for the holiday season, the Omicron variant threatens to deliver another gut punch to the recovery.
Economists said it’s still too early to tell the potential economic damage as scientists race to determine the transmissibility and severity of the new variant. But President Biden on Monday cautioned Americans against overreacting and assured them that, at least for now, the federal government won’t be recommending a new round of COVID lockdowns that could slow the economy again.
“This variant is a cause for concern. Not a cause for panic,” Biden said at the White House, flanked by mask-wearing Vice President Kamala Harris and Dr. Anthony Fauci, his chief medical adviser. Biden and other administration officials stressed the United States is in a better position to combat a new variant than it was several months ago because of higher vaccination rates. Biden also promised to announce a detailed strategy on Thursday for fighting the evolving pandemic that involves more vaccinations, boosters, and testing.
Wall Street already appeared to be taking Biden’s advice, with major stock indexes Monday regaining some of their losses after a major sell-off Friday in the wake of reports on the discovery of the new variant. The rebound was an early sign that, unless the Omicron variant proves to be highly contagious, the economic damage could be limited as people learn to live with the evolving pandemic, said Chris Rupkey, chief economist at FWDBONDS, a financial markets research company.
“The most leading of leading economic indicators is always the stock market, and the stock market is telling you the reaction on Friday to the South African variant was an overreaction,” he said. “This doesn’t feel like March 2020, version 2.”
Still, the new variant has led to uncertainty, which is never good for the economy.
“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,” Federal Reserve Chairman Jerome Powell will tell the Senate Banking Committee Tuesday, according to his prepared remarks. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”
Kathy Bostjancic, chief US financial economist at Oxford Economics, a global forecasting and analysis firm, said the Omicron variant probably will cause some slowdown in growth in the coming weeks even before more is known about how dangerous it is.
Americans could become more cautious, leading them to cancel holiday travel plans or eat out less, she said. If people hunker down and limit what they spend on services, like restaurants, while continuing to buy products online, that could exacerbate already high inflation by increasing demand while supply chains remain clogged.
“Certainly there’s been some knee-jerk reaction that most likely will impede economic activity in the near term,” Bostjancic said, noting the restrictions put in place by the United States and other nations on travel from southern Africa. Oxford doesn’t have enough information yet to revise its economic growth forecasts.
Biden’s economic team also doesn’t have any new projections taking into account the effects of the Omicron variant, said White House press secretary Jen Psaki. Asked if Americans should feel OK going forward with their holiday plans, she reiterated existing recommendations that they should be vaccinated, get a booster if eligible, and wear a mask in indoor public places.
“Nothing has changed in our guidance at this point in time, and what we’re trying to do is be as clear and transparent and direct with the American people as possible, including the fact that there are unknowns here and we’re working to assess those and get to the bottom of them,” Psaki said.
Later Monday, Biden met in person and virtually with chief executives of 10 companies, including Walmart, Mattel, and CVS Health, to discuss the holiday shopping season and efforts to ease supply chain problems. He told them his administration was prepared for the Omicron variant.
“We’re going to fight this with science and speed,” Biden said. “We’re not going to fight it with chaos and confusion, and we believe we can deal with it.”
Retailers will follow COVID safety guidelines as well and hope that a new wave of infections doesn’t take the steam out of holiday spending as it did last year, said Jack Kleinhenz, chief economist at the National Retail Federation.
“It shows how quickly things can happen. COVID is still in front of us and we cannot take anything for granted,” he said. “Compared to a year ago, I think we’re in much better shape. We have this prevention in place with vaccines and hopefully this variant isn’t any more challenging than Delta.”
The Delta variant took hold last summer just as newly vaccinated Americans were getting their lives back to normal. A combined 2 million jobs were added in June and July as people returned to work amid loosened virus restrictions and higher demand. But as the Delta variant spread, hiring fell off sharply in August and September as some workers, particularly in the leisure and hospitality sector, were worried about exposure on the job.
The emergence of the Delta variant caused vaccinations to pick up after bottoming out in early July. New COVID infections began declining in September and job growth rebounded to more than 500,000 in October. A new variant could start that cycle all over again.
“The pandemic was still going on, but we were feeling optimistic and perhaps maybe thought that … the worst was behind us,” Bostjancic said of Americans’ attitude at the start of the summer and again recently. “It’s reminiscent of Delta and that was quite disruptive.”
Fears that Omicron could be worse than Delta provide “another dose of uncertainty” that could cause caution in people who still haven’t rejoined the workforce, she said.
“If you were thinking of coming back in, maybe you say, ‘This might not be the best time. Let me wait and see,’ ” Bostjancic said. And if employers have to boost wages to lure hesitant workers back, that could add to an annual inflation rate that reached a 31-year high in October, she said.
One counterpressure on inflation could be oil prices, which tumbled 13 percent on Friday amid fears of an economic hit from the Omicron variant that would reduce demand. But just like with stocks, oil prices rebounded somewhat on Monday as investors dialed back their initial reaction.
Consumers similarly could shake off Omicron unless it proves to be more contagious and deadly than the Delta variant, Rupkey said.
“I think the American public has fatigue with disease and staying at home and taking precautions. They’ve had enough,” he said. “It doesn’t look like the consumer is going to pull back substantially on their spending based on the information we have right now.”