Pandemic’s Economic Impact Is Easing, but Aftershocks May Linger

The pandemic’s grip on the economy appears to be loosening. Job growth and retail spending were strong in January, even as coronavirus cases hit a record. New York, Massachusetts and other states have begun to lift indoor mask mandates. California on Thursday unveiled a public health approach that will treat the coronavirus as a manageable long-term risk.

Yet the economy remains far from normal. Patterns of work, socializing and spending, disrupted by the pandemic, have been slow to readjust. Prices are rising at their fastest pace in four decades, and there are signs that inflation is creeping into a broader range of products and services. In surveys, Americans report feeling gloomier about the economy now than at the height of the lockdowns and job losses in the first weeks of the crisis.

In other words, it may no longer be that “the virus is the boss” — as Austan Goolsbee, a University of Chicago economist, has put it. But the changes that it set in motion have proved both more persistent and more pervasive than economists once expected.

“I — totally naïvely — thought that once a vaccine was available, that we were six months away from a complete re-evaluation of the economy, and instead we’re just grinding it out,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “A switch didn’t get flipped, and I thought it was going to.”

The resulting limbo is a challenge for the Biden administration, which has so far failed to convince a skeptical public that its economic policies are working, despite falling unemployment and a recovery that has surpassed the most optimistic projections by most measures. And it is a challenge for policymakers at the Federal Reserve, who have struggled to assess how long the pandemic’s disruptions will last or the best way to mitigate their effects.

It is also a challenge for business owners like Katherine Raz.

Ms. Raz owns The Fernseed, a plant and flower shop with two locations in Tacoma, Wash. Like many retailers, the business has ridden the Covid-19 roller coaster: After closing for two and a half months at the beginning of the pandemic, Ms. Raz was able to reopen, and she even expanded the business in the summer of 2020. But a wave of cases later that year and a new round of government restrictions pushed the business to the brink and forced Ms. Raz to lay off one of her seven employees.

In some ways, 2021 followed a similar pattern. Business boomed in the spring as falling case levels and rising vaccination rates fed optimism that the pandemic was nearing its end. Then the Delta and Omicron waves led to a drop-off in demand and created staffing challenges.

This time, though, Ms. Raz was ready. She had built up a financial buffer and had invested in product lines less likely to suffer when cases rose. She reduced employees’ hours when business slowed, but avoided layoffs.

“I have a list of things, little levers that we can pull to…