That’s according to the National Retail Federation (NRF), which recently predicted omicron will likely impact the economy and contribute to inflation. However, the association, which represents the retail industry, isn’t expecting the ongoing surge to cause shutdowns or slowdowns.
“Even with the experience of the past two years, there is no model that can predict how the economy responds to a pandemic,” NRF Chief Economist Jack Kleinheinz said. “What we have learned is that each successive variant has slowed down the economy, but that the degree of slowdown has been less.”
That may be in part because omicron is believed to be less severe than the Delta variant and other stages during the pandemic. In addition, more than 62% of Americans are fully vaccinated against COVID-19, which may help reduce severe illness from the virus. Retail could also still be in a sweet spot as consumers reduce their in-person activities, such as spending time in restaurants and traveling, and increase their spending on retail.
“While omicron is highly transmissible, its effects can be relatively mild for those who are fully vaccinated and broad-based lockdowns are not expected,” Kleinhenz said. “Little is certain about omicron’s impact on consumer demand, but people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment. That would put further pressure on inflation since supply chains are already overloaded across the globe.”
However, 2022 is likely to be a challenging year with “substantial uncertainty,” Kleinhenz said in NRF’s latest Monthly Economic Review. Many of the uncertainties from 2021 have carried over into the new year, including supply chain issues and how high inflation will go and how long it will last.
“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. “What is ironic is that the monetary and fiscal policy that pulled the economy out of the recession has prompted unprecedented growth that is now undermined by accelerating prices.”
NRF’s report comes ahead of the Census Bureau’s December retail sales data, which will reveal sales totals for the holiday shopping season. November retail sales were up 14.8% year over year, according to NRF’s analysis, which excludes automobile dealers, gasoline stations and restaurants.
Unfortunately, inflation can be a “self-fulfilling prophecy,” according to Kleinhenz, who said workers seeing higher prices may ask for higher wages that lead to employers hiking prices. In November, inflation, as measured by the Personal Compensation Index, reached 5.7%. That’s the highest pace in almost 40 years. In addition, consumers are bracing for inflation to grow another 6%.
There are other signs that inflation could slow, however, including the Fed’s plans to increase interest rates. Consumers also expect only 4% inflation over the next three years as price increases slow. Despite the high inflation, consumer wealth grew 18.1% during the third quarter of 2021 compared to the previous year. The high amount of consumer wealth has supported retail analysts’ expectations that spending will remain strong.
“If there is one lesson we have learned, it is not to underestimate the resilience of the consumer and, therefore, the U.S. economy,” Kleinhenz said. “Fortunately, we have a lot of tailwind in terms of job growth, spending and production as we turn the calendar to 2022.”