The Delta variant of Covid-19 appeared to temper economic growth this summer, but economists expect the recovery from the pandemic to accelerate as the virus’s toll diminishes.
In recent weeks, many economists have lowered their forecasts for economic growth in the third quarter largely because consumers have slowed spending on out-of-doors meals, hotels and airline tickets amid the spread. of the highly contagious Delta variant. The Covid-19 surge has also made it difficult to reopen offices and schools, turning what was to be a September boom into a slowdown.
Supply constraints, including product and labor shortages, have also been more severe than many analysts anticipated, helping to lower growth expectations.
Forecasting firm IHS Markit predicted at the end of September that gross domestic product would increase at an annual rate of 3.6% in the third quarter. That’s less than half of the company’s estimate in mid-July for 7.8% growth in the third quarter, partly reflecting lower spending due to the Delta strain. The government will release its estimate of the third quarter U.S. gross domestic product on October 28.
“I think this new strain set off alarm bells that didn’t ring until July,” said Joel Prakken, chief US economist at IHS Markit. “The recovery is on solid footing. But it’s just not as robust as what we’ve seen in the first half of the year.”
Many economists have raised their growth forecasts for next year, indicating that some spending and production has been delayed by Delta’s push, rather than lost to it and supply chain disruptions.
There are early signs that the slowdown in spending is bottoming out as Covid-19 cases decline. In the week ended Sept. 28, the number of diners seated in restaurants fell only 8% from the same period in 2019, a less severe drop than at the start of the month, according to data from the OpenTable reservation site.
The occupancy rate of hotels in the United States was 63% for the week ending September 18, the highest level since the end of August, according to data from STR, a global hotel data and analysis company. Air travel has shown signs of recovery since it recently hit a low in mid-September, according to Transportation Security Administration figures comparing passenger traffic to 2019.
Covid-19 cases are expected to continue to decline, according to projections by the Centers for Disease Control and Prevention. If they do, households could tap into a record net worth of $ 142 trillion and increase their spending on in-person services, economists say. Consumer spending is the main engine of US economic growth.
“The consumer is in great shape,” said Aneta Markowska, chief economist at Jefferies LLC. “They have the firepower, they have the capacity to spend.”
Ms Markowska added that the holiday season could give spending a new boost. More people are likely to travel for family reunions than last year, when many stayed at home amid rising coronavirus cases, she said. A sign of strong vacation demand, there were five times more internet searches related to December travel in August than a year earlier, according to digital analytics firm Similarweb.
The Federal Reserve raised its growth forecast for 2022 to 3.8% in its September projections released last week, from 3.3% in June.
Some economists expect growth to pick up again after the third quarter. This month, Allen Sinai, chief economist and global strategist at Decision Economics, Inc., forecast that production would grow at an annual rate of 6.5% in the fourth quarter and at a rate of 5.1% in the first. quarter 2022, against 4.2% in the third.
The economy looks like a coil spring “which is held back in the third quarter by the worsening pandemic,” he said. “But six months from now, one way or another, as we’ve seen in the past, we’ll be on this bump.”
While the United States is vulnerable to the rapidly evolving pandemic and potential new variants, each wave of increasing Covid cases appears to pose a lesser economic threat.
The economic drag on the Delta variant has been less severe than previous virus outbreaks, according to many economists. Most American adults are now vaccinated, which helps consumers feel more comfortable. In addition, most businesses operate without capacity restrictions.
Revenues for restaurants and hotels at the 112-year-old Boulderado Hotel in Boulder, Colo. Surpassed pre-pandemic levels this summer and are now 5-10% higher than they were two years ago, said Creighton Smith, general manager of the hotel. . People keen to travel have been drawn to Boulder’s outdoor environment, he said.
“There were a lot of turned back travel requests for the summer and fall,” Smith said.
Delta has triggered a slowdown in winter bookings for corporate meetings, Smith said. Yet the hotel no longer faces the same trade restrictions and consumer fear of the virus that held back sales earlier in the pandemic.
“We are looking forward to a good fall and, I think, a decent winter,” he said.
Businesses reported a sharp increase in new orders for appliances, computers, cars and other durable goods in August. Businesses have struggled to meet consumer demand for goods.
Semiconductor shortages could continue to restrict the ability of buyers to purchase cars and other goods until next year. IHS Markit analysts lowered their estimates for vehicle production in 2022 on the grounds that overseas supply chain disruptions would take time to resolve. For example, in Malaysia, prolonged government shutdowns have reduced the country’s ability to supply semiconductors used in automobiles, the forecasting company noted.
Still, spending on durable goods fell over the summer after increasing in March, according to the Commerce Department. Economists expect demand for goods to cool in the coming months, giving businesses time to rebuild their inventories.
Housing permits, which have increased for two consecutive months, could offer an early signal that some material shortages are easing, said Ms Markowska of Jefferies. The increase in building permits suggests that home builders are able to secure more production materials to start projects, she said.
Labor shortages are expected to improve over the coming months, helping businesses meet demand. More workers are likely to return from the sidelines as schools reopen eases childcare burdens. The nationwide expiration of expanded unemployment benefits in September could put some workers back into the labor market.
Rising vaccinations, including among children, could give the job market another boost. Some parents have remained out of the workforce due to Covid outbreaks in schools and quarantine requirements, said Amy Crews Cutts, chief economist at AC Cutts & Associates LLC.
“If we can get these children vaccinated, it stops a lot of the transmission that is happening now that they are back in school,” she said.
Pfizer Inc. and its partner BioNTech SE have said their Covid-19 vaccine has been shown to be safe in children aged 5 to 11. President Biden also announced a new plan whereby all employers with 100 or more employees should require their workers to be vaccinated or undergo at least one weekly Covid-19 test. Economists say vaccine requirements could cause some workers to quit, while pushing others back into the workforce.
Labor shortages helped raise wages and salaries of private sector workers by 3.6% in the second quarter from a year earlier, the fastest pace since 2002, ministry data shows work. Economists expect the unemployment rate, which was 5.2% in August, to continue falling, putting continued pressure on wages. Higher wages could offer more support for consumer spending, even if wage gains would be partially offset by high inflation.
The federal government could also provide another round of spending that could boost growth, economists say. This includes a $ 1 trillion infrastructure bill and a separate $ 3.5 trillion budget bill that would expand access to health care, provide a universal preschool, and reduce carbon emissions, among other measures.
In the meantime, some economists say the increase in spending due to previous government stimulus is fading as several months have passed since the enactment of a $ 1.9 trillion pandemic stimulus package. this spring. Household stimulus checks were last handed out this spring, and expanded unemployment benefits of $ 300 per week ended nationwide in early September.
Other economists, however, argue that households still have plenty of cash and harbor strong pent-up demand for services. Households spent only about 25% of this year’s stimulus payments, according to an analysis of Household Pulse Survey data by Jefferies LLC. Low-income households spent an even lower share, according to the analysis.
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