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 an all-time high. New York, Massachusetts and other states have begun lifting mandates for indoor masks. 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. Work patterns, social contacts and spending disrupted by the pandemic have been slow to adapt. Prices are rising at the fastest pace in four decades, and there are signs that inflation is creeping into a wider range of products and services. In surveys, Americans say they feel more gloomy about the economy now than at the height of the lockdowns and job losses in the early weeks of the crisis.
In other words, it may no longer be the case that “the virus is in charge” – as Austan Goolsbee, a University of Chicago economist, put it. But the changes it has set in motion have proved both more persistent and pervasive than economists ever expected.
“I thought — totally naively — that once a vaccine was available, we were six months away from a full re-evaluation of the economy, and instead we’re just grinding it up,” said Wendy Edelberg, director of the Hamilton Project, an economic operator. policy branch of the Brookings Institution. “No switch was turned, and I thought it would.”
The resulting uncertainty poses a challenge to 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 with the most measures. . And it is challenging for policymakers at the Federal Reserve, who are struggling to assess how long the disruptions from the pandemic will last or how best to mitigate their effects.
It is also a challenge for entrepreneurs like Katherine Raz.
Mrs. Raz owns The Fernseed, a plant and flower shop with two locations in Tacoma, Wash. Like many retailers, the company has been riding the Covid-19 roller coaster: After being closed for two and a half months at the start of the pandemic, Ms. Raz was able to reopen, and she even expanded the business in the summer of 2020. But a wave of business later that year and another round of government restrictions pushed the company to the brink, forcing Ms. Raz to fire one. of its seven employees.
In some ways, 2021 followed a similar pattern. Business boomed in the spring as falling cases and rising vaccination rates fueled optimism that the pandemic was nearing an end. Subsequently, the Delta and Omicron waves led to a drop in demand and created staffing problems.
But this time, Mrs. Raz was ready. She had built up a financial buffer and invested in product lines that would be less likely to suffer if the number of cases increased. She reduced her employees’ working hours when business slowed down, but avoided layoffs.
“I have a list of things, little levers that we can use to make those adjustments to make the company more resilient,” she said.
Though Mrs. 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 begin offering classes and hosting events. She wants to hire a general manager to run day-to-day operations.
Those plans are on hold as Mrs. Raz struggles with ongoing disruptions. Supply chain problems have made it difficult to source important products, such as the terracotta pots she says were stuck in a shipping container somewhere. She has stockpiled whenever possible, committing months longer than usual. And after two years of what she calls “emotional whiplash,” she’s constantly on the lookout for another setback.
“I no longer pin my hopes on this ever being over,” 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.
Goolsbee, who served as 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 bring the pandemic under control itself. Until that happened, he said, the recovery would be driven by the ebb and flow of case numbers 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 took hold is that people were scared; they changed their behavior,” he said. “If this is a sign that fear is subsiding, the virus will no longer be in control and the economic pandemic will end.”
But others warn that the effects of the pandemic could outlast the pandemic itself, potentially resulting in a smaller workforce and faster inflation.
“It’s appropriate to start by asking, will some of these shifts persist at least to some degree?” said Michael R. Strain, an economist at the American Enterprise Institute. “Things that happen over a two-year period are more likely to stick than things that happen over a one-year period.”
Fear of the virus may still affect consumer demand. Spending in restaurants fell in December and January as the most recent spike in coronavirus cases caused diners to stay at home. Air travel, hotel bookings and other personal services members also. And while employers added jobs in January, total hours worked have fallen — in part because employees were sick at home and most likely also because of schedule cuts as demand dwindled.
But demand for services didn’t fall as much during the latest coronavirus wave as it did during the pandemic, and preliminary data suggests it has recovered more quickly. More comprehensive data through December shows that the crisis-driven shift in consumer spending from goods to services is reversing, albeit slowly.
Supply disruptions were more difficult to resolve. Shortages of computer chips, lumber and even garage doors have held up the production of items from cars to homes, while a lack of shipping containers has resulted in delays in almost everything shipped from abroad. Some bottlenecks have disappeared in recent months, but logistics experts expect it will take months, if not years, for supply chains to run smoothly again.
Then there is the labor shortage. The pandemic has pushed millions of people out of the workforce, and while many have returned, others — a disproportionate share of them women — have not.
Diahann Thomas was working in 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 had to pick him up.
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“There’s all these moving parts with Covid now — one minute they’re at school, the next they’re at home,” she said.
Ms Thomas, 50, said her employer refused to offer flexibility while her son was in quarantine. So she quit — a decision she says was made easier by the knowledge that employers like to hire people.
“It’s boosted my confidence to know that at the end of it all it won’t be hard for me to pick up the pieces, and I now have more bargaining power,” she said. “There’s been a whole shift in terms of the 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 home with her three children, she said, and she wants a job where she can work from home.
Whether and how people like Mrs Thomas go back to work will be crucial for the course of the economy in the coming months. If workers flow back into the labor market as school and childcare become more reliable and health risks decrease, it will be easier for manufacturers and shipping lines to ramp up production and deliveries, giving supply a chance to meet demand. That, in turn, could help inflation cool without losing the economic progress of the past year.
“If you improved the public health situation, you would see economic improvements in terms of more work, more production, and better functioning of the economy,” said Aaron Sojourner, a University of Minnesota economist who has studied pandemic economics. “I think that’s a real limitation.”
But people who have taken early retirement or left their jobs to care for children may not return to work right away or choose to work part-time. And other changes can be reversed just as slowly: Companies burned by shortages may hold 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. The rates of entrepreneurship, automation and of course remote working have all risen, perhaps permanently, during the pandemic.
Some of those changes could lead to higher inflation or slower growth. Others could make the economy more dynamic and productive. All of this makes it more difficult for forecasters and policymakers to get a clear picture of the post-pandemic economy.
“In almost every way, economic ripple effects that we expected to be temporary or short-lived are turning out to be longer lasting,” said Luke Pardue, an economist for Gusto, a small business payroll platform. “The new normal looks very different.”
