Mounting omicron infections force businesses to scramble, threatening economic recovery

The omicron coronavirus variant is slowing the economic recovery, making worker shortages for already-shorthanded employers more severe and leading consumers to pull back from spending on restaurants, hotels and airlines that have been battered by two years of pandemic upheaval.

Since it was first detected in southern Africa late last year, the highly contagious coronavirus variant has sparked restrictions on business activity in several countries.

In the United States, major airlines this week canceled thousands of flights, while public transit systems in New York and Washington curtailed service because of staffing shortages. Professional sports schedules were upended and corporations such as American Express, Goldman Sachs and The Washington Post have shelved their January return-to-office plans.

David Nayfeld, co-owner of Che Fico, an Italian taverna in San Francisco, said he spent more than $5,000 on rapid coronavirus tests in December before opting to temporarily close for the last two weeks of the year. This week, he's struggling to reopen even as he fears that fresh waves of infections will render his efforts futile.

"We lost our highest revenue-driving months of the year, which means our highest profit-driving months, and every day we are getting reports that two or three of our staff is getting infected with omicron," said Nayfeld, who said nearly a dozen of his 70 employees are currently ill.

Omicron's fallout, which is likely to worsen before it eases, shows that the recovery remains vulnerable to the coronavirus's unpredictable trajectory. The growing toll of sick workers - Capital Economics says more than 5 million Americans are in quarantine - is hammering employers that already were struggling to secure enough labor. Yet even as pandemic fatigue deepens, there are hopes that omicron will prove to be a punishing but short-lived squall.

"At first, it was a lot of fear of the unknown," said Dean Burrows, chief executive of Gear Motions, a Syracuse, N.Y.-based manufacturer. "Over two years later, our employees are more educated. We're more knowledgeable as a country. Now we kind of understand what it is. . . . We know how to manage it."

Omicron so far has made little impression upon financial markets, which are focused on the Federal Reserve's planned credit tightening and the ebbing of the $1.9 trillion American Rescue Plan. Since late November, when the South African government reported the new variant to the World Health Organization, the Dow Jones industrial average has risen at an annualized 15% rate. The yield on the benchmark 10-year treasury security, which would be expected to rise if investors anticipated a recession, has moved little.

"The mood in the market is that it's not going to be that big a deal economically," said Jim O'Sullivan, chief U.S. macro strategist for TD Securities. "The hope is it'll be over in a month."

After being sideswiped last summer by the delta variant of the coronavirus, the economy roared back to grow at an annual rate of more than 7% in the last three months of the year, according to the Federal Reserve Bank of Atlanta's estimate.

Now, many Wall Street economists are trimming their projections for the first months of this year. O'Sullivan reduced his first-quarter growth forecast to 2% from 3% but expects the economy to make up the lost ground in the next three months.

The emergence of the new variant comes at a time of unprecedented labor market churn. A record 4.5 million Americans quit or changed their jobs in November, the Labor Department said earlier this week. An unprecedented spike in the number of workers who are employed but unable to work because of illness could distort the government's January employment data, which would exclude any unpaid workers in quarantine, economist Andrew Hunter of Capital Economics wrote in a note to clients on Wednesday.

Omicron is testing Federal Reserve Board Chair Jerome H. Powell's assertion last summer that Americans have "learned to live with" the coronavirus. Companies have developed new ways of operating amid the risks posed by a global pandemic, while vaccinations have made government shutdowns less likely, Powell said in July.

At the Horton Hotel in Boone, N.C., a university town about 100 miles northwest of Charlotte, managers try to respond to a constantly shifting landscape. The luxury property housed in a 98-year-old building boasts two bars, including an open-air rooftop venue that hosts the local New Year's Eve ball drop.

With omicron threatening, the hotel limited attendance to 15% to 20% of capacity and sent non-guests home at 11 p.m., said Adam Zembruski, program director for Hospiamo, an adviser to the Horton's owners.

So far, four out of the hotel's roughly 25 workers have tested positive for the coronavirus, and managers are eyeing additional restrictions if needed.

"It's an everyday conversation. We could close the bars. We talked about that just last night," he said earlier this week.

While the virus poses an acute problem for businesses that deal with the public, manufacturers also are crafting new strategies to keep their machines turning.

Business is good at J.V. Manufacturing, a die and component maker in Natrona Heights, Pa. As orders flooded in over the past year, the company added about 40 new employees, taking its payroll to 137 workers.

From the start of the pandemic to Nov. 1, just six workers tested positive for the coronavirus, according to Melissa Vecchi, the company's executive director. Then, 37 people came down with the virus in November alone. In the past several days, after the holidays, there's been a fresh outbreak of 11 cases.

Now the company is considering an increased push for robotics and digitization to make production less vulnerable to missing workers, she said.

“I definitely think it’s here to stay,” she said of the virus. “It’s just about finding a way to balance it, finding what risks are worth taking and what risks aren’t worth taking.”

Some institutions face special staffing challenges. In the pandemic’s initial waves, medical professionals surged to geographic hot spots, relieving overwhelmed local caregivers. But with the omicron variant erupting in every region, individual hospitals and clinics are on their own, according to J. Stephen Jones, chief executive of Inova, the Northern Virginia health-care system.

"There aren't more people to come to help right now," he said.