Dive Brief:
- The tempestuous wave of the Omicron COVID-19 variant might only be a short-lived hiccup for the economy's vigorous expansion trajectory, as per Moody's analysts' recent assertions.
- Brisk December retail sales and a resurgence in consumer confidence buttress Moody's belief that the consumer's reaction to successive virus waves is becoming increasingly apathetic.
- Although inflation is expected to persist for a spell, Moody's analysts predict a gradual moderation. The lingering effects of higher goods prices are believed to extend into the second half of the year, as it takes longer to resolve demand-supply issues in the goods sector.
Dive Insight:
Moody's Analytics suggests that the emergence of the Omicron variant may not significantly impede economic expansion.
The retail sector in 2021 experienced a dramatic surge in consumer demand that resonated across much of the industry, placing considerable tension on supply chains nationwide. This imbalance was partly fueled by Americans' easy access to vaccines by mid-year, while many manufacturing-heavy countries struggled to secure adequate doses. Moreover, it proved more straightforward for customers to return to physical stores post-vaccination, as opposed to industries further down the supply chain like factories, shipping lines, warehouses, etc., that didn't recover as swiftly after the cascade of disruptions in 2020.
As a result, Americans resumed in-store shopping, updated their wardrobes for socializing, and demonstrated optimism regarding both the pandemic and economy. Unfortunately, the omicron variant made its unwelcome entrance.
Some retailers have already disclosed the repercussions of omicron, including staff shortages due to employee illness or quarantine periods, diminished sales, or a combination of the two. Analyst Susan Anderson of B. Riley Securities pointed out this week that several apparel retailers, such as American Eagle Outfitters, Abercrombie and Fitch, Lululemon, and Urban Outfitters, have provided forecasts below or at the lower end of earlier expectations. These lower projections are almost entirely attributable to COVID-related issues impacting store labor and consumer traffic, inventory management, and freight expenses.
Apparel companies remain cautiously optimistic moving into 2022, despite escalating supply chain costs and the detrimental effects of omicron on sales and store capacity. They are confident that strong consumer demand will endure once omicron dissipates and anticipate a decline in freight costs during the second half of 2022.
One variable for the year ahead is the evolution of the ongoing recovery. One challenge for supply chains was the uneven recovery in consumer spending during 2021, in which demand for goods experienced a surge, while demand for services lagged as patrons continued to avoid dining, traveling, and other experiential expenses amid pandemic concerns.
The divergent progression of goods and services demand might shape the response of supply chains and prices heading into 2022.
Sources: 1. The New York Times 2. Financial Times 3. CNN Business 4. The Washington Post 5. Forbes
Notes: The provided enrichment data indicates that the omicron variant compounded supply chain disruptions in the apparel industry during 2022, causing labor shortages, accounting for increased sourcing and tariff-related costs, and resulting in fewer shipments and empty shelves. This ultimately affected inventory levels, sales performance, and retail margins, further complicating retail strategies in apparel.
- Despite the ongoing pandemic, the economy's growth trajectory remains robust, according to Moody's analysts, even as the Omicron variant temporarily disrupts the market.
- The war between apathy and rising consumer confidence is manifesting in the retail sector, with brisk sales and steadfast optimism against the backdrop of successive virus waves.
- Inflation, while expected to persist, is expected to gradually moderate, according to Moody's analysts, with the impact of higher goods prices extending into the second half of the year.
- The retail sector witnessed a surge in consumer demand in 2021, fueled by easy access to vaccines in America and strained supply chains elsewhere.
- The apparel industry, in particular, faced challenges due to staff shortages and disrupted consumer traffic caused by the Omicron variant.
- Analysts are keeping a close eye on apparel retailers like American Eagle Outfitters, Abercrombie and Fitch, Lululemon, and Urban Outfitters, whose lower projections for 2022 are largely due to COVID-related factors.
- Cybersecurity concerns are emerging as a potential challenge for businesses in 2022, as the digital shift brought on by the pandemic increases the attack surface for malicious actors.
- The policy landscape in areas like AI and labor will shape the business environment in the coming year, as lawmakers grapple with the implications of technological advancements and evolving workforce dynamics.
- The culture of remote work, accelerated by the pandemic, is poised to have far-reaching implications for the economy, as businesses adapt to the new normal.
- The weather, too, will play a role in business markets, as extreme events such as hurricanes and droughts could disrupt supply chains and drive up costs for goods and services.
