Finding certainty through data in 2022

January 2022 – Parsing current trends to see what 2022 will bring seems as fraught with uncertainty as any time over the past two years since the pandemic began. After one of the strongest fourth quarters on record for consumer spending, the emergence of the Omicron variant and the return of public health interventions to contain its rapid spread now cloud the outlook.

Just as medical advancements provide us with better tools to mitigate the health risks from new outbreaks, new data tools launched during the pandemic bring greater clarity and certainty into what this latest phase of the pandemic might bring. Using such tools, including the Visa Spending Momentum Index, reveals three insights into the pandemic’s evolving influence on the economic recovery:

1. Consumer spending may slow as a result of the Omicron variant, but the potential shock will be less: each successive variant’s impact on spending has been less than the one before.
2. The recovery is moving to a more sustainable footing as some of the initial unevenness linked to the pandemic is dissipating. Spending by the affluent and within large cities has recovered.
3. Although each wave is now having less of an impact on consumer demand, it still has the power to disrupt the supply of services and goods as sickness sidelines workers. As such, COVID-19 could temporarily contribute to higher inflation than traditional models would suggest until it moves from being pandemic to endemic.

Highlights:

• Omicron’s impact on consumer demand should be limited
• The global recovery is shifting to a more sustainable footing
• Disruptions to business operations from sickness is the key economic risk from the current and future variants

COVID-19’s impact on consumer spending is waning

Since the pandemic began, countries around the world have balanced public health interventions with keeping the economy running. The trade-off between the two has become less stark as new innovations in business and health help to lower the economic costs of containing outbreaks. In February 2020, much was unknown about how COVID-19 spread and how to contain it. Medical innovations and advancements since then have helped bring better ways to contain the disease without cutting off commerce. With each successive wave¹ – an average of five in total for the six countries depicted below –businesses and consumers have also adapted, allowing more spending to continue.

From Australia to the United States, consumer spending momentum may have slowed with each outbreak, but not to the same extent as the first outbreak in spring 2020. Spending momentum has mostly remained near or above the critical 100-point threshold of the Visa SMI index, indicating that more households continued to spend more through the later outbreaks. The Omicron variant’s impact fits this trend too.

A broader basis now underpins the recovery

Early in the recovery, spending momentum in large cities and by the affluent lagged. However, over the past year, both have started to rally, helping to put the expansion on a more sustainable footing. Since June 2021, the largest most globally-connected cities, including New York, London, Toronto, Sydney, Dublin and Auckland, have started to regain spending momentum lost during the pandemic. This welcome upturn points to a return of urban dynamism that over time can speed and sustain the recovery.

For the greater part of the past two years, consumer demand in these cities plus their peers included in our SMI index for the top 50 cities globally (“Top 50 Cities SMI”)² lagged smaller cities (“Small Cities SMI” - those with populations less than 500,000). Falling activity in large cities gave rise to concern that their decline could erode productivity and weaken economies over time. Strengthening demand as measured by the SMI points to a revival of commerce, which can help to fill now-vacant storefronts. As urban amenities lost during the pandemic return, this could attract new residents or encourage those that relocated to return.

Based on depersonalized transaction data, as many as 3 million people in these top 50 cities may have relocated to less populated areas during the pandemic, or an average of 2 percent of the cities’ pre-pandemic population between Q3-2019 and Q3-2021.

A deeper dive into the data available from the United States also gives further evidence that a more sustainable recovery has taken hold. Spending momentum of consumers living in more affluent U.S. counties³ since early 2021 has also closed gaps that opened during the pandemic.

A key contributing factor to this turn-around was the emergence of vaccines, which enabled previously-cautious affluent consumers to return to eating out in restaurants, visiting entertainment venues and shopping in person. During the Delta variant wave last summer, counties that were more vaccinated took less of a hit to consumer demand than their less-vaccinated peers, even in areas where the disease was spreading more rapidly.

The pandemic’s impact on supply matters in 2022

The Omicron variant and its potential successors’ impact on consumer demand is lessening, but they still retain the power to disrupt supply chains and business operations. In future outbreaks, inflation could accelerate further for longer. With consumer demand in major economies bolstered by the recovery in labor markets and stockpiled savings, each new COVID outbreak will likely lead to renewed inflationary pressures. Earlier in the pandemic this was not the case as both supply and demand were simultaneously curtailed.

Each new infection per 10 workers on average results in one percentage point higher price inflation – a measure of the virus’ restraining effect on the productive capacity of the economy at a given level of demand, as measured by the Visa SMI across six key markets. Just as societies learned to adapt to shop differently to keep demand from falling, the key challenge for this year and beyond is how to keep workers healthy so as to minimize disruptions to supply chains and business operations.

Footnotes

• ¹ Outbreaks for this analysis are defined as periods where the estimated reproduction rate of the virus is equal to or above one (i.e. where each infected person on average passes the disease onto at least one other person).
• ² Cities in the “Top Cities SMI” are New York, Los Angeles, Chicago, Dallas, Houston, Washington D.C., Miami, Philadelphia, Atlanta, Phoenix, Boston, San Francisco, Riverside, Detroit, Seattle, Minneapolis, San Diego, Tampa, Denver, St. Louis, London, Manchester, West Midlands, Leeds, Glasgow, Liverpool, Sheffield, Tynside, Bristol, Nottingham, Toronto, Montreal, Vancouver, Calgary, Ottawa-Gatineau, Edmonto, Quebec, Winnipeg, Hamilton, Kitchener, Sydney, Melbourne, Brisbane, Perth, Adelaide, Gold Coast, Canberra, Sunshine Coast, Auckland, Dublin.
• ³ U.S county income groupings are based on per capita personal incomes, whereby the top quartile of counties with the highest incomes within each state are classified as high and bottom quartile as low-income counties.

Forward-looking statements

This report may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Art of 1995. These statements are generally identified by words such as “outlook”, “forecast”, “projected”, “could”, “expects”, “will” and other similar expressions. Examples of such forward-looking statements include, but are not limited to, statement we make about Visa’s business, economic outlooks, population expansion and analyses. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. We describe risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, any of these forward-looking statements in our filings with the SEC. Expect as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise

Disclaimer

Case studies, comparisons, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Visa Inc. neither makes any warranty or representation as to the completeness or accuracy of the information within this document, nor assumes any liability or responsibility that may result from reliance on such information. The Information contained herein is not intended as investment or legal advice, and readers are encouraged to seek the advice of a competent professional where such advice is required.