U.S. Economy Set to Pick Up Speed After Delta-Driven Downturn

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Economists cut Q3 growth estimates due to Covid-19 surge and supply constraints, but expect recovery to pick up pace

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Supply constraints—including product and labor shortages—were more severe than many analysts previously estimated, contributing to the decline in growth expectations.

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Forecasting firm IHS Markit estimated at the end of September that GDP would grow at a 3.6% annual rate in the third quarter. That’s less than half the mid-July estimate for 7.8% growth in the third quarter, reflecting a dent in spending from the Delta stress. The government will release its third quarter US GDP estimates on October 28.

“I think this new tension has set off some alarm bells that weren’t ringing before July,” said Joel Praken, chief US economist at IHS Markit. “Recovery is at a solid level. But it’s not as strong as what we saw in the first half of the year.”

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Many economists have raised their growth forecasts for the next year, indicating that some spending and output have been delayed by a delta boom, not lost by and supply-chain disruptions.

There are early signs that spending is coming down: decline in covid-19 cases. In the week ending September 28, restaurant occupants were down just 8% from the same period in 2019, a less severe drop than earlier in the month, data from reservation site OpenTable show.

US hotel occupancy was 63% for the week ended September 18, the highest level since the end of August, according to data from global hospitality data and analytics company STR. Air travel has shown signs of improvement since hitting a recent trough in mid-September, according to Transportation Security Administration data comparing passenger traffic with 2019.

According to estimates from the Centers for Disease Control and Prevention, the decline in Covid-19 cases is likely to continue. Economists say that if they do, families could generate a record $142 trillion in net worth and increase spending on personal services. Consumer spending is the biggest driver of US economic growth.

“The consumer is in a very good position,” said Anita Markoska, chief economist at Jefferies LLC. “They have the firepower, they have the spending power.”

Ms Markoska said the holiday season could provide another incentive to spend. He said more people are likely to travel with family than last year, when many people stayed at home amid rising cases of coronavirus. In a sign of strong holiday demand, December travel-related Internet searches were five times higher in August than a year earlier, according to digital analytics company SimilarWeb.

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

Some economists expect growth to pick up after the third quarter. This month, Alan Sinai, Chief Global Economist and Decision Economics, Inc. K strategists, projected production will grow at a 6.5% annual rate in the fourth quarter and 5.1% in the first quarter of 2022, up from 4.2%. Third.

The economy looks like a coiled spring “getting down from the worsening pandemic in the third quarter,” he said. “But six months from now, somehow, as we’ve seen in the past, we’ll be over that hump.”

While the US is vulnerable to a rapidly changing pandemic and potentially new forms, each wave of rising COVID cases appears to be less of an economic threat.

Many economists say the economic pull from the delta variant was less severe than from previous virus surges. Most American adults are now vaccinated, which helps consumers feel more comfortable. In addition, most businesses are operating without capacity restrictions.

Restaurant and hotel revenues at the 112-year-old Hotel Boulderdo in Boulder, Colo., broke above pre-pandemic levels this summer and are now up 5% to 10% compared to two years ago, said hotel general manager Creighton Smith. Is. . He said people interested in traveling have been drawn to Boulder’s outdoor environment.

“There was a lot of demand for travel for the summer and fall,” Mr Smith said.

Delta has triggered a slowdown in winter bookings for corporate meetings, Mr Smith said. Still, hotels no longer face the same commercial restrictions and consumer fears of the virus that previously held sales back in the pandemic.

“We are expecting a nice fall and, I think, a fine winter,” he said.

In August, companies reported a sharp increase in new orders for appliances, computers, cars and other durables. Businesses have struggled to meet consumer demand for goods.

The shortage of semiconductors could impair buyers’ ability to buy cars and other items by next year. Analysts at IHS Markit lowered their projections for 2022 vehicle production on the grounds that overseas supply-chain disruptions would take time to resolve. For example, in Malaysia, extended government lockdowns have squeezed the country’s ability to supply semiconductors used in autos, the forecasting firm noted.

Even after rising in March, spending on long-lasting goods fell over the summer, according to the Commerce Department. Economists expect demand for goods to ease in the coming months, giving businesses time to restore inventory.

Ms Markowska of Jefferies said housing permits, which have been extended for two straight months, could be an early sign that some material shortages are easing. He said the increase in building permits shows that homebuilders have been able to obtain more production materials to launch projects.

The labor shortage will improve in the coming months, helping businesses meet demand. The reopening of schools is likely to bring back more workers to ease the burden of child care. The nationwide end of unemployment benefits extended in September could pull some workers back into the workforce.

Increased vaccinations—including those of children—could fuel another labor-market. Amy Crew Cutts, chief economist at AC Cutts & Associates LLC, said some parents have been out of the labor force due to the Covid outbreak and quarantine requirements in schools.

“If we can get these kids vaccinated, it stops a lot of the transmission that is happening now that they’re back in schools,” she said.

pfizer Inc.

and partner BioNTech SE said their COVID-19 vaccine was found to be safe in children between the ages of 5 and 11. President Biden also announced a new plan that would require all employers with 100 or more employees to vaccinate their employees or undergo at least weekly. Covid-19 test. Economists say the need for a vaccine could prompt some workers to quit, while pulling others back into the labor force.

Labor shortages caused wages and salaries for private sector workers to rise by 3.6% in the second quarter from a year earlier, the fastest pace since 2002, according to Labor Department data. Economists expect the unemployment rate – which stood at 5.2% in August – to continue to decline, putting pressure on wages. Higher wages may offer greater support for consumer spending, even though wage benefits will be partially offset by higher inflation.

Economists say the federal government may also provide another round of spending that could spur growth. This includes a $1 trillion infrastructure bill and a separate $3.5 trillion budget bill that would expand access to health care, provide universal preschool and reduce carbon emissions, among other measures.

In the interim, some economists say spending growth from earlier government stimulus is fading as several months have passed since the enactment of the $1.9 trillion pandemic stimulus plan this spring. Household stimulus checks were last distributed this spring, and extended unemployment benefits of $300 a week ended nationwide in early September.

However, other economists argue that households are still short of cash and there is a high demand for services. According to an analysis of data from the Household Pulse survey by Jefferies LLC, households only spent about 25% of this year’s stimulus payments. According to the analysis, low-income households spent even less share.

write to [email protected] . But Sarah Chaney Cambon

.

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