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What the Economy Might Look Like After Omicron

The new normal is hard to predict. The economic picture is mixed while downtowns remain under peril.

An empty street in downtown Louisville, Ky.
An empty street in downtown Louisville, Ky., during the pandemic. Few if any economists expect downtowns to return completely to normal after the pandemic subsides.
(Alan Greenblatt/Governing)
Okay, so now what? The omicron spike is coming to an end, with cases going down as rapidly as they initially shot up. Democratic governors who insisted on strict measures have rushed to abolish school and indoor mask mandates. Anthony Fauci says we’re moving out of the “full-blown pandemic phase.” A large share of the nation stopped following public health guidelines a long time ago, but even many who remained cautious appear ready to “vax and relax,” getting back to something better resembling normal life.

But what will normal life look like? Predictions of the pandemic’s end have been made repeatedly and proven to be premature, but it appears the nation should have a relatively mild and healthy spring, at least. There could certainly be another wave — already, a new subvariant of omicron is spreading — but it appears likely the combination of public mood and lack of political will mean, almost regardless of what comes next, a less robust and disruptive public health response.

Does this mean that it’s time to party like it’s 2019? Right now, it doesn’t feel like it. The country is in a foul mood. An NBC News poll last month found that nearly three-quarters of Americans believe the country is on the wrong track. It’s not hard to guess why. Sure, you can get a job, but can you find child care? Inflation is at a 40-year high. Even if you can afford to buy goods at higher prices, supply chain problems continue to make finding some items difficult. Certainly big purchases like houses and cars have become a source of great frustration.

Supply chain problems are already less acute than they were last year and most economists are convinced that inflation will come back down. That doesn’t mean things feel normal or good. A lot of economic measures look great — GDP growth is strong, the number of business startups is high and workers can write their own tickets in the best labor market in half a century — but there seems to be a psychological disconnect between the facts and figures and how things feel.

“Watching continuing inflation, particularly in rents or homeownership, in a lot of ways is worse than the price of milk going up, because that hits people literally where they live,” says John Lettieri, president of the Economic Innovation Group, a research firm.

In terms of the pandemic, things might be getting better, but it’s difficult to feel confident, after so many false promises, that we’ll keep heading down an improved path for any sustained period of time. There’s been too much “unpredictability and whiplash,” Lettieri says, a hangover from two years of living, if not with dread, then with uncertainty.

In short, while the country might be turning the corner, we have no way of knowing what’s coming around the bend. The economy may be growing but feels like it isn’t working for many people. Working conditions are totally unpredictable, with plans to return to the office put off time and time again. And the fact that people don’t know where they’ll be spending most of their working day leaves big questions about where they’re going to live and what the downtowns where they used to work will look like.

“Two years is a long-term experiment and I don’t see any way for that not to have profound effects going forward,” Lettieri says. “I was skeptical, but I’ve become a convert to the idea that this is going to have lasting effects on all aspects of American life.”

Where the Jobs Are

Over the past decade, one of the major economic trends has been the concentration of economic growth in a relatively small number of cities. Seattle and San Francisco did great, while much of the country was left wondering whether the last recession would ever end.

There have been no end of stories about people moving out of Silicon Valley and New York during the pandemic, entire companies acting like 19th century settlers and painting GTT — “gone to Texas” — on their doors. Austin and a few other Sunbelt cities — Dallas, Phoenix and Nashville among them — are experiencing booms the pandemic has only accelerated.

But although it can be difficult to rent an empty U-Haul to drive out of the Bay Area, the reality is that most people aren’t moving. It’s tough to buy a home in remote work paradises such as Idaho Falls, Idaho, and Helena, Mont., but both people and companies remain by and large rooted where they were before the pandemic.

What economists call the agglomeration effect — having people in like-minded professions working in concert and learning from each other — remains powerful. Even the Bay Area, which has seen a good number of people move out, maintains its strong pull as a magnet for venture capital funding, drawing $120 billion last year.

“Now, as a new normal begins, we’re still going to have a very short list of very powerful economic hubs,” says Mark Muro, policy director at Brookings Metro, a think tank. “The share of the technology industry in the largest eight superstar metros remains the same.”

Where People Will Actually Work

Most people are still going to work near other people doing similar work. It’s been that way throughout human history — banking in 16th century Antwerp, factories in 19th century New England, movie production in 20th century Hollywood. “People are generally social animals and there are nice things about going into work and seeing people in person that you don’t get from the occasional Zoom meeting,” says Benjamin Page, a senior fellow at the Urban-Brookings Tax Policy Center.

There’s evidence to support the view that most people with office jobs will go back to doing them at the office. Tech companies sent their workers home early and kept them there, yet the big guns — Amazon, Meta, Google — have leased or purchased millions of square feet during the pandemic in places such as New York, Seattle and Silicon Valley. A survey last year by Gensler Research Institute found that nearly half the companies it defined as “top performing” expect to need more real estate post-pandemic, with a large chunk expecting to expand their footprints by at least 25 percent.

In part, this is why there hasn’t been a permanent exodus out of the major cities. Most people will be expected to show up for work physically, if only occasionally. But they won’t necessarily be coming back downtown. Many companies are opening regional hubs within their home cities. And many will allow workers to stay home or come in two or three days a week. The productivity and efficiency of remote workers has been improving throughout the pandemic and compares favorably with working on site, especially when the reduction in commute time is factored in.

One survey of knowledge workers found that 78 percent want location flexibility in regard to where they do their jobs. Seventeen percent of businesses in Philadelphia say they’ve had prospective employees turn down job offers that didn’t include options for fully remote work. “Remote work is not a genie you’re going to get put back into the bottle,” says Dan White, an economist with Moody’s Analytics. “Companies are competing with each other over flexibility. They can only offer so much money, so they’re competing on flexibility.”

This will translate into lower numbers of people trekking downtown each day. It’s impossible to predict how much the decline will end up being, but even a 10 to 15 percent drop will have enormous consequences for restaurants and other downtown service businesses, not to mention public transit. Cities with commuter taxes are predicting declines in the neighborhood of 15 percent in their income tax collections.

“If downtowns were an industrial sector, like automobile manufacturing, the job losses from remote work would be cause for an urgent national strike force of financial institutions, corporations, transit, governments and business improvement districts to respond at scale,” says Bruce Katz, an urban expert at Drexel University.

Downtowns may become more focused on entertainment and amenities and less on shopping because of e-commerce competition, Muro suggests. But placemaking is clearly going to be one of the great post-pandemic challenges.

“The great exodus is mainly from big center cities to suburbs and exurbs,” Muro says. “A great problem we’ll be dealing with for the next decade will be sprawl.”
A person filling up their car at a gas station.
Higher gasoline prices are an immediate hit to a budget and have been inching up for months, thanks to rising inflation.
(Rebecca Slezak/TNS)

This Assumes We’ll Stay Healthy

You can drop the mask mandates, but that doesn’t mean everyone will feel safe. Even as things open up, high school students in places such as Brooklyn and Denver have staged walkouts, demanding stronger safety protocols. At one point last month, as many as 9 million people said they were off work due to illness or caring for others who were sick.

Although cases have come down fast, they remain higher than at nearly any other point in the pandemic, with deaths also near their tragic high-water mark. “Everyone’s eager to see what happens on the other side of the omicron wave, but we’ve got to get there,” says Josh Sharfstein, vice dean for public health practice and community engagement at the Bloomberg School of Public Health at Johns Hopkins University.

Through much of the pandemic, the idea that COVID-19 is “like the flu” was a “big lie” that dangerously undersold the danger, wrote Bob Wachter, who chairs the Department of Medicine at the University of California, San Francisco. “Post-surge, our task will be to convince folks it’s ‘like the flu’ when, in fact, it is.”

That is, if you’re vaccinated and boosted. Many of the unvaccinated remain stubbornly impervious to persuasion. Mandates have largely worked in workplaces where they’ve been imposed, but the Supreme Court disallowed most of President Biden’s mandates. The Canadian border blockades are only the most dramatic form of resistance.

That means tens of millions of Americans will remain vulnerable to hospitalization and death from COVID-19. Anti-viral pills promise to reduce serious illness dramatically, but they remain in short supply. Once they’re produced at scale, they still will have to be taken fairly early in the course of the disease, meaning people need to get tested. “There’s a little bit of wishful thinking that people who are unvaccinated will test themselves soon enough to get anti-virals,” Sharfstein says. “We need people to test themselves and seek treatments and that’s a challenge.”

Those who are healthy have to deal with the trauma of living through the worst mass casualty event in the nation’s history. The total U.S. death toll is likely to reach 1 million by April. Many people have lost loved ones or continue to struggle with the disease’s many lingering effects. A third of the country reports symptoms of depression or anxiety, with problems especially acute among young adults.

The new normal won’t be like the old normal. And, despite some encouraging signs, things might not be normal for some time yet to come.
Alan Greenblatt is the editor of Governing. He can be found on Twitter at @AlanGreenblatt.
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