US economy set to accelerate after delta recession


The Covid-19 Delta variant appeared to dampen economic growth this summer, but economists expect the pandemic recovery to accelerate again as damage from the virus is mitigated.

In recent weeks, many economists have seen economic growth in the third quarter, mainly because consumers delayed spending on food, hotels and airline tickets amid the proliferation of highly contagious delta variants. I lowered my forecast. The Covid-19 surge also made it difficult to reopen offices and schools, turning what was to be a September boom into a recession.

A wild card is an ongoing supply constraint, including a shortage of products and workers, which is more severe than many analysts believed, helping to lower inflation and growth expectations.

Constraints like safeguards at U.S. ports and unrest in overseas manufacturing continue, but the Federal Reserve and economists hope they will eventually be relaxed.

Federal Reserve Chairman Jerome Powell said on Wednesday that the recent period of high inflation could last longer than central bank officials predicted, but he said the price spike would eventually catch on. end. Repeated his expectation for him to disappear.

“The current inflationary surge is actually the result of supply constraints that meet very high demand, and everything revolves around the recovery of the economy. It is a process of beginning, middle and end. Powell said in a moderated discussion hosted by the European Central Bank.

Many economists have lowered their growth forecasts for the third quarter, but raised their forecasts for next year. This indicates that some expenses and productions have been delayed due to the rise of the delta and disruptions in the supply chain.

Forecasting firm IHS Markit predicted at the end of September that GDP would grow at an annual rate of 3.6% in the third quarter. That’s less than half of the company’s mid-July estimate of 7.8% growth in the third quarter, partly reflecting lower spending on Delta shares. The government will release an estimate of U.S. gross domestic product for the third quarter on October 28.

Joel Prakken, Chief US Economist at IHS Markit, said: “The recovery is built on solid foundations, but it is not as strong as we saw earlier this year. “

Many economists have raised their growth forecasts for next year, indicating that delta surges and supply chain disruptions have delayed some spending and production.

The surge in Covid-19 cases fueled by Delta variants has delayed the reopening of offices and schools.

Photo:
Stephanie Keith / Bloomberg News

As the number of Covid-19 cases declines, there are early signs that the spending slowdown has bottomed out. According to data from the reservation site OpenTable, the number of restaurant seats for the week ending September 28 fell only 8% compared to the same period in 2019, less severe than at the beginning of the month.

The occupancy rate of hotels in the United States for the week to September 18 was 63%, the highest level since the end of August. Data from global hotel analytics and data firm STR show. According to statistics from the Transportation Security Administration, passenger traffic relative to 2019 shows signs of a recovery in air travel since it recently hit a valley in mid-September.

The Centers for Disease Control and Prevention predicts that Covid-19 cases could continue to decline. If so, economists say households can use a record $ 142 trillion in net worth to increase spending on face-to-face services. Private consumption is the main engine of US economic growth.

Aneta Markovska, chief economist at Jeffreys LLC, said, “They have firepower and the ability to use.”

Markowska added that the holiday season could be another boost for spending. As the number of coronavirus cases increases, she said she was more likely to travel for family reunions than last year when many were at home. According to digital analytics firm Similarweb, the number of travel-related internet searches in August-December was five times higher than the previous year, a sign of strong vacation demand.

The Federal Reserve raised its 2022 growth forecast to 3.8% in its September forecast released last week, from 3.3% in June.

Some economists expect further acceleration in growth after the third quarter. This month, Decision Economics, Inc. Allen Sinai, chief global economist and strategist, ranks third with an annual growth rate of 6.5% in the fourth quarter of 2022 and 5.1% in the first quarter.

He said the economy looks like a coil spring “held in the third quarter by a worsening pandemic.” “But, as we’ve seen in the past, six months from now, we’ll get over that bump anyway.”

The United States is vulnerable to rapidly evolving pandemics and potential new variants, but each wave of growing Covid cases appears to pose a lesser financial threat.

According to many economists, the economic resistance of the Delta subspecies was not as severe as the previous wave of the virus. Today, most American adults are vaccinated, providing consumers with greater peace of mind. In addition, most businesses operate with unlimited capacity.

Revenues for the restaurant and hotel at the 112-year-old Hotel Boulder Rad in Boulder, Colo. Surpassed pre-pandemic levels this summer and are now 5-10% higher than ‘two years ago. Clayton Smith, the hotel’s general manager, said. .. He said that travel enthusiasts are drawn to Boulder’s outdoor environment.

“In the summer and fall the demand for travel was very high,” Smith said.

According to Smith, Delta has caused a slowdown in winter bookings for corporate meetings. Yet the hotel no longer faces the same trade restrictions and consumer fears over the virus that blocked sales at the start of the pandemic.

“We are looking forward to a good fall, and I think it’s a decent winter,” he said.

In August, businesses reported an increase in new orders for household appliances, computers, transportation equipment and other consumer durables. Companies are struggling to meet demand for their products.

The semiconductor shortage could continue to weigh on the ability of buyers to purchase cars and other products next year. IHS Markit analysts have lowered their 2022 auto production quotes because it will take time to resolve overseas supply chain disruptions. In Malaysia, for example, the government’s extension of the blockade has put pressure on the country’s ability to supply semiconductors for use in automobiles, predictors say.

Still, spending on sustainable raw materials plummeted over the summer after an increase in March, according to the Commerce Department. Economists expect demand for goods to cool in the coming months, giving businesses time to restock.

Housing permits increased for the second month in a row, according to Jeffreys Markovska, which could be a first indication that some material shortages have abated. She said the increase in building permits suggests home builders will have more production materials available to start projects.

Labor shortages will improve over the next few months, helping businesses meet demand. More workers may come back from passers-by as the reopening of the school reduces the burden of childcare. When the extended unemployment benefit in September expires across the country, some workers may re-enter the labor market.

Building permits in the United States increased for the second consecutive month, which may have alleviated some material shortages.

Photo:
Mike Pause / Reuters

Increasing immunization, including that of children, could further boost the labor market. Amy Crews Cutts, chief economist at AC Cutts & Associates LLC, says some parents are absent from the workforce due to Covid outbreaks and school quarantine requirements.

“If we could immunize these children, it would stop a lot of the communications that are happening now that they have gone back to school,” she said.

Economists say the need for vaccines may cause some workers to quit and re-enter the workforce.

Labor shortages led to a 3.6% year-on-year increase in wages and salaries of private workers in the second quarter, the fastest pace since 2002, according to data from the Ministry of Labor. Economists expect unemployment to continue falling (5.2% in August) and continue to put pressure on wages. Higher wages can further support consumer spending, even if higher inflation partially offsets higher wages.

The delta variant of Covid-19 is growing globally, threatening the unvaccinated population and economic recovery. The WSJ analyzes events in major countries and explains why the delta is spreading faster than previously detected stocks.Composite: Sharon Sea

The federal government could also come up with another round of spending that could boost growth, economists say. This includes a $ 1 trillion infrastructure bill and another $ 3.5 trillion budget bill that expands access to health care, provides a universal kindergarten and cuts carbon emissions.

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What are your prospects for the rest of the economy in 2021? Join the conversation below.

Some economists say households are always inundated with cash and have a disgusting demand for services. According to an analysis of Household Pulse Survey data by Jefferies LLC, households are only spending about 25% of their stimulus payments this year.

Write to Sarah Chaney Cambon ([email protected])

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US economy set to accelerate after delta recession

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