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Omicron's Negative Impact on Economy May Be Fleeting

Unemployment claims haven't risen much in recent weeks, and businesses have learned how to deal with the pandemic.
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The Covid omicron strain is denting the economy this quarter, but the impact may not last too long, economists say.

“There are so many potential ways that this could go,” Tara Sinclair, an economist at George Washington University, told The New York Times. “We didn’t even agree on where we were going without omicron, and then you throw omicron on top.”

Individual companies may be struggling with worker outages, but The Times points out that initial unemployment claims haven’t risen much in recent weeks, and job postings on the career site Indeed haven’t slipped much from their all-time peaks.

“It’s a vast difference from 2020, where there were mass layoffs,” Harvard economist Jason Furman, an adviser to President Barack Obama, told The Times. “Now employers are holding on to people because they expect to be in business in a month.”

Meanwhile, though the IHS Markit composite purchasing managers index fell to an 18-month low of 50.8 in January from 57 in December, there were glimmers of hope in the report Monday.

Customer demand remained strong among services industries, which indicates activity may rebound once omicron passes, The Wall Street Journal reports. And input price inflation continued to lessen, which may signal healing in the supply chain.

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The economic pain from omicron stems largely from workers having to stay home, rather than government restrictions that hit the economy earlier in the pandemic, Simon MacAdam, senior global economist at Capital Economics, wrote in a commentary cited by The Journal.

“We think the economic hit will prove short-lived and will be mostly made up for in the months ahead,” he said.

The economy could be able to weather the storm as people learn to live with the virus. "What we are seeing is an economy that functions right through these waves of Covid," U.S. Federal Reserve Chairman Jerome Powell said earlier this month, Reuters reports.

"If the experts are right and omicron is going to go through really quickly and peak perhaps within a month and come down after that, I think it is likely you will see lower hiring and perhaps a pause in growth, but it should be short-lived."

To the extent that omicron depresses demand, it might also ease pressure on inflation. The end of government stimulus programs might help restrain spending.

“That stimulus pay really helped push people past their reticence and say, ‘It’s ok to spend,’” Nela Richardson, chief economist for payroll company ADP, told The Times. “Now there’s no big push in stimulus, and so people might change their spending behavior.