Coronavirus case surge hindering economic recovery

An omicron-driven surge of COVID-19 is hindering the economic recovery from the pandemic.

The swift, record-shattering spike in coronavirus cases has dampened consumer activity, spurred layoffs, and forced millions of Americans out of work to take care of themselves or a sick family member. Private sector data on dining and travel, rising weekly jobless claims, widespread staffing issues, and school closures is pointing to dismal January job gains and slower first-quarter growth.

While economists say the omicron variant will not derail the economy as a whole, millions of front-line workers, working parents and service sector businesses are staring down another brutal pandemic winter.

"It's pretty clearly doing things that are bad to the economy," said Claudia Sahm, macroeconomic research director at the nonprofit Jain Family Institute.

"The underlying pace of the recovery is in a place where it can weather the storm. But there are clearly some workers and some families and some small businesses that are not going to weather the storm," she added.

A slowing recovery driven by rising COVID-19 cases is a major challenge for President Biden, who ran for the White House on a pledge to end the pandemic and rebuild the economy. The president's approval ratings on his handling of COVID-19 and the economy have fallen steadily as both virus cases and consumer prices have spiked.

Biden's sweeping social services and climate plan - a pillar of his economic agenda - is on ice after Sen. Joe Manchin (D-W.Va.) torpedoed the package in December and insisted Thursday negotiations must start "from scratch." The Supreme Court also struck down Biden's private sector vaccine mandate last week, disarming the president's most aggressive attempt to curb the pandemic.

While the White House is scrambling to send out millions of rapid tests and masks, omicron has already taken a toll on consumer sentiment and economic activity.

Fifty-nine percent of adults believe normal activities pose "moderate" or "large" health risks, according to a poll from Ipsos and Goldman Sachs Investment Research, the highest total since March 2021. Those fears are likely behind a sharp drop in Transportation Security Administration airport throughput and OpenTable's dining tracker.

"Employers with public-facing workers, like schools and emergency service providers, appear to have had particularly large shares of their labor force isolate due to the virus," wrote economists at Goldman Sachs in a Thursday research note.

Roughly 12 million Americans missed work in the first 10 days of January either to care for a loved one with COVID-19 or to avoid contracting it, according to a Moody's Analytics analysis of Census Bureau data released Wednesday, twice the total during the same period in December.

Weekly jobless claims also rose by 55,000 to a seasonally adjusted total of 286,000 last week, according to the Labor Department, reaching the highest level since October.

Both the claims data and the Census Bureau survey cover the period when the Bureau of Labor Statistics (BLS) calculates the federal monthly jobs report - a foreboding sign for January employment growth.

"With so many workers out, odds are high that the BLS will report employment declined in January," tweeted Mark Zandi, chief economist at Moody's Analytics.

"The worker shortages will likely also give wages and inflation another temporary boost," he added.

Higher pressure on wages could be cold comfort for low-earning workers struggling with both the toll of front-line jobs during the pandemic and the strain of higher prices. While omicron's relatively tamer symptoms may limit its overall impact, infection could still mean severe consequences for low-wage and front-line workers.

"There's a lot of focus on the fact that omicron often leads to mild symptoms. But for a worker, especially a parent, the implications are still extremely disruptive," said Molly Kinder, a fellow at Brookings Institution who studies the impact of COVID-19 on low-wage workers.

Workers without paid sick leave or the ability to work from home could lose significant income even from a mild case of COVID-19, Kinder said, without the safety net of federal protections or unemployment benefits that lapsed last year.

"A lot of front-line workers just simply don't have a cushion to draw on to be able to compensate for that," she continued "And if you're a parent, what you worry about then is your child can get it or could be forced to quarantine as well and not go to school or not go to day care."

Omicron could also delay the return to the labor force for millions of workers who've remained on the sidelines because of health concerns or child care responsibilities.

Despite the intense pressure facing some households and businesses, Congress is unlikely to send another major relief package to Biden's desk. While lawmakers are discussing additional spending for public health measures such as mask and test distribution, the relative strength of the economy and high inflation makes more fiscal relief a non-starter.

"I do not think that we need any additional COVID spending. We've had too much government spending, and the problems of inflation and stagnant labor force supply that we're seeing are, in part, really driven by excessive amounts of fiscal support," argued Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.

While Sahm said the Biden administration and Congress should have never allowed pandemic unemployment aid to lapse, she acknowledged the limits of broader fiscal aid in curbing the blow of omicron.

Even so, she and Kinder both warned against attempting to push through pandemic by forcing potentially infectious workers to come back.

"It's a very shortsighted policy to not give workers enough leave to stay home until they're healthy, because all that's going to do is encourage workers to come back to work while they're still contagious," Kinder said.

"Shortchanging that because you're worried about not enough workers could shoot yourself in the foot," Kinder added.