Omicron to Breed 'Uncertainty' but Likely No Widespread Shutdowns: NRF
The COVID-19 omicron variant will bring “uncertainty” to the economy in 2022, and could contribute to inflation, but it's “unlikely to cause widespread shutdowns or slowdowns” due to its “relatively mild” effects for fully vaccinated individuals, said National Retail Federation Chief Economist Jack Kleinhenz Wednesday. Each successive COVID-19 variant has slowed the economy, but “the degree of slowdown has been less” with each one, he noted.
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Acknowledging the uncertainty of omicron’s impact on consumer demand, Kleinhenz said people who stay at home because of the variant “are more likely to spend their money on retail goods" rather than dining out or engaging in-person entertainment. That could put further pressure on inflation “since supply chains are already overloaded across the globe.” Kleinhenz expects “another very challenging year of substantial uncertainty” due to unknowns about the pandemic’s course, whether supply chain issues will be resolved, and the extent and duration of inflation.
“Inflation started gradually and then came on strong, but clearly heated up during 2021 and has become a formidable factor facing the economy and especially consumers,” Kleinhenz said. He noted the irony that the monetary and fiscal policies that pulled the economy out of the recession have led to “unprecedented growth that is now undermined by accelerating prices.” Inflation, which was driven by shortages of goods as COVID-19 shut down factories and snarled supply chains at the same time government stimulus fueled consumer spending, is likely to continue in 2022, "but should eventually slow," said the economist.
Worries about inflation can become a “self-fulfilling prophecy,” Kleinhenz said, as workers facing higher prices for everyday products like groceries “may demand higher wages that force employers to increase prices.” Inflation as measured by the federal Personal Consumption Expenditure Index was up 5.7% in November, the highest in nearly 40 years, and a Federal Reserve Bank of New York survey showed consumers expect inflation to grow to 6% over the next year. With the Fed planning multiple interest rate increases this year, “consumers will be encouraged to save money" to help "cool off inflation,” he said.
Even with inflation, consumer wealth grew 18.1% year over year in Q3 and consumers “have never been as wealthy as they are today,” Kleinhenz said. Job growth and wage gains amid the current labor shortage are continuing to drive consumer income and spending. He sees job growth, spending and production as tailwinds for the economy in 2022.