Wednesday, January 19, 2022
Have we reached the peak in new COVID-19 cases in the United States linked to the Omicron variant, and how is its rapid spread affecting U.S. consumer behavior? We look to high-frequency data for early clues and see that Omicron appears to be moderating behavior in a similar way that Delta did in the fall of 2021.
“High-frequency data shows that the Omicron variant surge has already taken an economic toll on many vulnerable service-oriented industries, such as airlines, theaters, and restaurants,” explained LPL Financial Quantitative Strategist George Smith. “But there is light at the end of the tunnel as based on the experiences of South Africa and the United Kingdom we could see U.S. Omicron case counts declining as sharply as they rose, potentially paving the way for the economic recovery to continue at a solid pace in 2022.”
As shown in the LPL Chart of the Day, South Africa and the United Kingdom (U.K.), both of which identified the Omicron variant earlier than the U.S., have seen significant declines in cases since peaks on December 17 and January 5, respectively. The number of new cases in South Africa (where testing rates are lower than in the U.K. and U.S., hence overall lower numbers) are down 80% from the peak a month earlier. U.K. cases, which have tracked the U.S. closely during prior waves, have subsided to half of the peak in just two weeks. While it is hard to say for sure, especially as many states are at different stages of Omicron infection, if this is the peak in U.S. cases at a national level, it could be a great step toward eventually easing strain on healthcare systems, labor supply shortages, and supply chain disruptions.
High-frequency data from the U.S. Transportation Security Administration (TSA) shows that air traffic passengers traveling through U.S. airports peaked at Christmas and Thanksgiving 2021, recovering to almost 90% of the pre-pandemic levels. Since the Christmas peak, the number of passengers has dropped by over 30% in absolute terms, half of which can be attributed to a normal seasonal reduction after the holidays and the remainder due to increased passenger concerns around Omicron leading to canceled or delayed travel plans.
Data on U.S restaurant diners from OpenTable shows a similar recovery had occurred right back to pre-pandemic levels by Thanksgiving 2021. Since then diner concerns over Omicron, and the increased local restrictions in response to it, appear to be dampening demand for eating out as bookings are now down a little over 27% versus the same period in 2019. The national data continues to hide wide discrepancies in the data between different states and cities. Many cities in Florida and Texas are still seeing moderate increases versus 2019 bookings, even as New York and San Francisco show declines of 62% and 65%, respectively, versus the same period (after getting to within 34% and 37% of pre-pandemic levels at Thanksgiving 2021).
Data on U.S theater box office returns show that after a dismal 2020 and first half of 2021 theaters got a much needed Christmas boost with the release of “Spider-Man: No Way Home.” The movie took in an impressive $250 million on its opening week, which occurred before the start of the Omicron surge. So far, Spider-Man has grossed $702 Million (73% of all domestic theater tickets sold since release), making it the 4th highest-grossing movie in U.S. theater history and the first to even break the top 150 since pre-COVID-19. The number of moviegoers has quickly dropped off since the Christmas peak and the 4-week rolling average high is 22% lower than Christmas 2019, but still an impressive 1,372% higher than 2020. Looking back to Delta it took a further month after the peak of COVID-19 cases for ticket sales to start picking up again so there could be more disappointing numbers until at least the next expected blockbuster release: “The Batman” expected March 4.
We continue to keep a close watch on how the Omicron variant unfolds across the U.S. and believe that it will likely have a drag on the economy in Q4 2021 and into 2022. Economic growth will take a slight hit both from the immediate moderations in consumer behavior shown by the high-frequency data but also from the potential for Omicron to extend labor shortages and resulting supply chain disruptions as well. Slower economic growth won’t likely slow the rate of Federal Reserve rate hikes expected this year as Omicron has pushed further demand from services onto goods, while also weakening the supply side, both factors that could contribute to higher inflation sticking around for longer than expected before the latest surge. Persistently high inflation however is not our base case, and we still believe that one-year inflation should peak by around mid-2022, as the economic impacts of Omicron fade.
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