Will the Delta Variant Wreck the Recovery?

Will the Delta Variant Wreck the Recovery?
Written by admin
Will the Delta Variant Wreck the Recovery?

Will the Delta Variant Wreck the Recovery?

The good economic news, when it comes to the ascending Delta variant of the coronavirus, is that it only puts the economy at risk in two ways. The bad news: it’s supply and demand.

So far, the recovery remains robust according to most of the available data. Real-time indicators of business activity show little evidence that Americans are significantly withdrawing their economic activity.

But while there is no reason to expect a repeat of the huge disruption of 2020, the new variant puts at risk the kind of rapid recovery that has been underway for months. Just as much of the economy was looking to get back to full operation, it can be tantamount to throwing sand into the gears.

The emergence of the variant has already caused several wobbly days on Wall Street. And Federal Reserve Chairman Jerome Powell is expected to be faced with questions about the economic implications of Delta at a press conference Wednesday afternoon after a meeting of the Fed’s policy committee.

At the White House, officials are watching the variant closely, but see no evidence that it is hurting the recovery – or that policymakers will need to inject another dose of short-term fiscal stimulus anytime soon.

“Overall, it appears that the risks are considerably reduced compared to the intensity of the crisis,” said Kathy Bostjancic, chief financial economist in the United States at Oxford Economics. “But I think you have to worry about macroeconomic risks, and our experience over the past 18 months has shown that.”

As economists and policymakers determine the nature of these risks, what emerges is not the possibility of a major shutdown. Instead, concerns are constraints on the availability of workers and on the supply and demand for many services.

READ Also  Big offers on laptops, headphones, watches

On the supply side, there are already serious disruptions in many supply chains, especially those that depend on goods imported from Asia. These create ripple effects for the United States, such as a shortage of computer chips which in turn hampers auto production and contributes to high inflation.

Many Asian countries – especially those that are behind in vaccinating their populations – are putting in place lockdowns to try to stop the spread of the Delta variant, which threatens to exacerbate these shortages and price spikes.

“We had previously predicted that semiconductor shortages would continue through 2022, and that is virtually assured now,” said Sara Johnson, executive director of global economy for IHS Markit. She noted that new restrictions limited production activity in countries such as Vietnam, Indonesia, Thailand and Malaysia.

A more domestically focused supply-side risk stems from the US labor supply.

Employers complain about labor shortages, and if the renewed risk of disease makes even vaccinated adults reluctant to enter or re-enter the workforce, these shortages could worsen.

This is especially true if schools revert to distance learning, even for short periods, which would make the job for parents all the more difficult.

“What if you have a relapse?” Said Ms. Bostjancic. “Are you closing school for a week?” It is very disturbing for parents who want to return to the workforce.

On the demand side, there is some solace in the seemingly robust spending of U.S. consumers, which is teeming with savings accumulated from the pandemic, federal stimulus dollars and rising wages.

The consumer confidence index edged up in July, the Conference Board said on Tuesday, suggesting that the emergence of the variant has so far not done major damage to consumers’ willingness to spend.

READ Also  Paytm rs 50 crores guaranteed cashback offer on each transaction by qr scan

There’s even a kinky twist that could lessen the variant’s impact on demand for things like restaurant meals and concert tickets. The infection rate has remained relatively low in places with high vaccination rates. In places where infections are skyrocketing, public sentiment tends to be overwhelmingly against anything that looks like a lockdown.

Yet, as two Bank of America economists Stephen Juneau and Anna Zhou noted, Michigan experienced a decline in consumer spending on services during its wave of infections earlier this year, even in the absence of formal restrictions on the activity.

“So far we have seen little evidence that the Delta variant significantly affects economic activity or spending on services,” they wrote in a recent research note. “However, survey data indicates increased reluctance to be in physical locations and concerns about the virus.”

This could prove particularly relevant in a few segments of the economy that have been the slowest to recover from the pandemic recession.

Many white collar employers have been on the verge of bringing workers back to their offices. If these plans change due to the variant, offices and downtown streets are likely to be left empty for longer, implying less demand for office space and dining at the downtown restaurant.

There is a similar story in the business travel industry, which has lagged behind leisure travel in the return to health. Will conferences and trade shows return with the kind of sustained participation that many hotels, convention centers and event planners were hoping for?

One particularly tricky thing is that the solution to these potential economic ripples lies in the realm of public health. If the recovery stalls, fiscal and monetary policies are unlikely to play a large constructive role. Already, enough money is flowing through the economy to make overheating and inflation a major concern.

READ Also  Energy Department Targets Vastly Cheaper Batteries to Clean Up the Grid

There may be a lack of demand for very specific things, like sandwiches at a downtown restaurant or rooms at a convention center hotel. But it is difficult to argue in the summer of 2021 that there is a great risk of insufficient aggregate demand.

White House officials say vaccinations in recent months – and strong federal support for individuals and businesses – have laid the groundwork for the economy to maintain momentum even as the delta spreads. And they believe consumers will react differently this time around to the spread of the virus.

In previous waves, people who feared a higher risk of contracting Covid-19 could either take on that risk and maintain normal economic activities, or cut spending in places like retail stores and restaurants. Now, officials say, scared consumers have a third choice. They can get vaccinated and largely maintain their usual routines – or, if they are already vaccinated, continue to spend as they were.

All of this means that the political response to the Delta variant, as with Covid from the start, relies more on achieving the best possible public health outcomes, with conventional economic policy being a secondary concern.

Just when it seemed like the story of pandemic politics was finally drawing to a close, in other words, it began to repeat itself.

Jim Tankersley contributed reporting.

#Delta #Variant #Wreck #Recovery

Click to rate this post!
[Total: Average: ]

About the author