The pandemic’s grip on the economy appears to be loosening. Job growth and retail spending were strong in January, even as coronavirus cases hit a record. New York, Massachusetts and other states have begun to lift indoor mask mandates. California on Thursday unveiled a public health approach that will treat the coronavirus as a manageable long-term risk.
Yet the economy remains far from normal. Patterns of work, socializing and spending, disrupted by the pandemic, have been slow to readjust. Prices are rising at their fastest pace in four decades, and there are signs that inflation is creeping into a broader range of products and services. In surveys, Americans report feeling gloomier about the economy now than at the height of the lockdowns and job losses in the first weeks of the crisis.
In other words, it may no longer be that “the virus is the boss” — as Austan Goolsbee, a University of Chicago economist, has put it. But the changes that it set in motion have proved both more persistent and more pervasive than economists once expected.
“I — totally naïvely — thought that once a vaccine was available, that we were six months away from a complete re-evaluation of the economy, and instead we’re just grinding it out,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “A switch didn’t get flipped, and I thought it was going to.”
The resulting limbo is a challenge for the Biden administration, which has so far failed to convince a skeptical public that its economic policies are working, despite falling unemployment and a recovery that has surpassed the most optimistic projections by most measures. And it is a challenge for policymakers at the Federal Reserve, who have struggled to assess how long the pandemic’s disruptions will last or the best way to mitigate their effects.
It is also a challenge for business owners like Katherine Raz.
Ms. Raz owns The Fernseed, a plant and flower shop with two locations in Tacoma, Wash. Like many retailers, the business has ridden the Covid-19 roller coaster: After closing for two and a half months at the beginning of the pandemic, Ms. Raz was able to reopen, and she even expanded the business in the summer of 2020. But a wave of cases later that year and a new round of government restrictions pushed the business to the brink and forced Ms. Raz to lay off one of her seven employees.
In some ways, 2021 followed a similar pattern. Business boomed in the spring as falling case levels and rising vaccination rates fed optimism that the pandemic was nearing its end. Then the Delta and Omicron waves led to a drop-off in demand and created staffing challenges.
This time, though, Ms. Raz was ready. She had built up a financial buffer and had invested in product lines less likely to suffer when cases rose. She reduced employees’ hours when business slowed, but avoided layoffs.
“I have a list of things, little levers that we can pull to make those adjustments to make the business more resilient,” she said.
While Ms. Raz is no longer concerned about the survival of her business, she remains cautious. She would like to open a third location, in Seattle, and to start offering classes and holding events. She wants to hire a general manager to run day-to-day operations.
Those plans are on hold while Ms. Raz grapples with continuing disruptions. Supply chain problems have made it hard to get key products, like the terra cotta pots that she said were stuck somewhere in a shipping container. She has stocked up on inventory wherever possible, tying up capital for months longer than normal. And after two years of what she calls “emotional whiplash,” she is on constant guard for another setback.
“I have stopped pinning my hopes on this being over, ever,” she said. “I’m just preparing for the worst all the time and not hoping for the best.”
Some economists remain optimistic that the economy will normalize as the pandemic recedes, even if the process takes longer than initially expected.
Mr. Goolsbee, who was chief economic adviser under President Barack Obama, was among those who argued early in the pandemic that the best way to revive the economy was to get the pandemic itself under control. Until that happened, he said, the recovery would be steered by the ebb and flow of case counts and hospital capacity, variants and countermeasures.
He recently pointed to the relatively mild economic impact of the Omicron wave as evidence that consumers were becoming more comfortable.
“The reason the virus was the boss is that people were afraid; they changed their behavior,” he said. “If this is a sign that the fear is easing, the virus will no longer be the boss, and the economic pandemic will be ending.”
But others warn that the pandemic’s effects could outlive the pandemic itself, potentially resulting in a smaller work force and faster inflation.
Spending at restaurants fell in December and January, as the spike in coronavirus cases associated with the Omicron variant kept diners at home.Credit…Amir Hamja for The New York Times
“It is appropriate to start asking, are some of these shifts going to stick to at least some degree?” said Michael R. Strain, an economist at the American Enterprise Institute. “Things that happen over a two-year period, the chances of them sticking are larger than things that happen over a one-year period.”
Fear of the virus can still affect consumer demand. Spending at restaurants fell in December and January, as the most recent spike in coronavirus cases kept diners at home. Air travel, hotel bookings and other in-person services also suffered. And although employers added jobs in January, the total number of hours worked fell — partly because of workers were home sick, and most likely also because of cutbacks in scheduling as demand declined.
But demand for services didn’t fall as far during the latest coronavirus wave as it did earlier in the pandemic, and preliminary data suggests that it has recovered more quickly. More comprehensive data through December shows that the crisis-induced shift in consumer spending away from goods and toward services is reversing, albeit slowly.
Supply disruptions have been harder to resolve. Shortages of computer chips, lumber and even garage doors have held up production of items from cars to houses, while a lack of shipping containers has led to delays in almost anything transported from overseas. Some bottlenecks have let up in recent months, but logistics experts expect it to take months if not years for supply chains to run smoothly again.
Then there is the labor shortage. The pandemic pushed millions of people out of the work force, and while many have returned, others — a disproportionate share of them women — have not.
Diahann Thomas was at work at a Brooklyn call center in January when she got a call from her son’s school: Her 11-year-old had been exposed to a classmate who had tested positive for Covid-19, and she needed to pick him up.
The Coronavirus Pandemic: Key Things to Know
The virus in the U.S. As new cases continue to drop, governors in Washington and New Mexico became the latest state leaders to ease mask rules. Hawaii remains the only U.S. state with mask requirements that has not yet announced plans to relax them.
Vaccines and boosters. Although new federal data suggests that the effectiveness of booster shots wanes after about four months, the Biden administration is not planning to recommend fourth doses of the coronavirus vaccine anytime soon.
Around the world. Global cases are dropping, but the W.H.O. said it is watching an Omicron subvariant that is on the rise. For an upcoming presidential election in South Korea, voters with coronavirus will have a 90-minute window to cast their ballots at polling stations.
“There are all these moving parts now with Covid — one moment, they’re at school, the next moment they’re at home,” she said.
Ms. Thomas, 50, said her employer declined to provide flexibility while her son was in quarantine. So she quit — a decision she said was made easier by the knowledge that employers are eager to hire.
“It did boost my confidence to know that at the end of this, it’s not going to be difficult for me to pick up the pieces, and I have more bargaining power now,” she said. “There is this whole entire shift in terms of employee-employer relationship.”
Ms. Thomas expects to return to work once school schedules become more reliable. But the pandemic has shown her the value of being at home with her three children, she said, and she wants a job where she can work from home.
Whether and how people like Ms. Thomas return to work will be crucial to the economy’s path in coming months. If workers flood back to the job market as school and child care becomes more dependable and health risks recede, it will be easier for manufacturers and shipping companies to ramp up production and deliveries, giving supply a chance to catch up to demand. That in turn could allow inflation to cool without losing the economy’s progress over the past year.
“If you got the public health situation improved, you would see economic improvements in terms of increased work, increased output, increased functioning of the economy,” said Aaron Sojourner, a University of Minnesota economist who has studied the pandemic economy. “I do think that’s a real constraint.”
But people who retired early or left jobs to care for children may not go back to work right away, or may choose to work part time. And other changes may be similarly slow to reverse: Companies that were burned by shortages may maintain larger inventories or rely on shorter supply chains, driving up costs. Workers who enjoyed flexibility from employers during the pandemic may demand it in the future. Rates of entrepreneurship, automation and, of course, remote work all increased during the pandemic, perhaps permanently.
Some of those changes could lead to higher inflation or slower growth. Others could make the economy more dynamic and productive. All make it harder for forecasters and policymakers to get a clear picture of the postpandemic economy.
“In almost every respect, economic ripple effects that we might have expected to be temporary or short-lived are proving to be more long-lasting,” said Luke Pardue, an economist for Gusto, a payroll platform for small businesses. “The new normal is looking a lot different.”
