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Home >Economy >Delta variant of covid-19 isn’t expected to dent robust US recovery

The highly contagious Delta variant of Covid-19 doesn’t pose an immediate risk to the strength of the U.S. economic recovery, with analysts expecting a robust expansion to continue in the second half of the year.

Many economists are maintaining forecasts for solid economic growth due to expectations of steady hiring and continued spending, driven by accumulated savings and Americans’ desire to travel and socialize more than a year into the pandemic.

They see limited disruptions to the economy as local health officials try to avoid restrictions and boost vaccinations in response to the recent case surge. Economists are more concerned about firming inflation than the Delta variant as they assess the economic outlook.

“The variant is a significant downside risk for the economy, but that risk is more than offset by what are still very strong fundamentals," said Oren Klachkin, lead U.S. economist at Oxford Economics. “Consumers have a lot of cash and seem eager to spend on activities they couldn’t do for 18 months. And, for now, it seems like the vaccines should be able to keep the spike in cases fairly low."

Oxford, a forecasting firm, hasn’t changed its projection for U.S. gross domestic product—a broad measure of the economy’s output of goods and services. It expects GDP to rise at nearly a 9% annualized pace in the third quarter. Such historically strong growth would be in line with the stimulus-fueled expansion in the first half of the year.

Capital Economics, another forecasting firm, is projecting slower growth due to inflation, but isn’t changing its forecast due to the Delta variant.

“I wouldn’t expect it to have a big negative impact—unless it got completely out of control," said Paul Ashworth, chief economist for North America at Capital Economics. “I think this is more a public-health issue now."

Covid-19 cases, hospitalizations and deaths have risen across the U.S. in recent weeks at a time when the Delta variant became the predominant cause of illnesses tied to the deadly virus. The uptick has touched every state but is primarily occurring in areas with lower vaccination coverage. It hasn’t triggered the widespread closures, layoffs and restrictions on business activity that occurred in the spring of 2020.

Mr. Ashworth said the rise in cases has been concentrated in areas such as the South that are unlikely to impose strict or new pandemic restrictions. Those states, he said, have had lighter limits on businesses and activity throughout the pandemic. He also said it is too soon to know any impact in places that are re-implementing restrictions because of the Delta variant, such as parts of California that have reimposed mask mandates.

“I don’t think being forced to wear a mask inside a store is what stopped people. It was that those stores were actually closed," Mr. Ashworth said.

Consumer spending accounts for 70% of the U.S. economy. So if Americans are still willing and able to spend, economic growth will continue—although accelerating inflation poses its own risk for the economy. Retail sales—a measure of purchases at stores, restaurants and online—rose 0.6% in June compared with May, according to Commerce Department data.

Restaurants and bars and clothing and accessories stores saw strong sales gains last month, reflecting demand for services and items related to activities outside the home following the end of many state and local Covid-19 restrictions. Retail sales overall were up 18% in June compared with their pre-pandemic levels in February 2020.

Americans also are walking and driving around this month at the highest level since the pandemic began and transit usage has returned to near pre-pandemic levels, according to Apple Mobility data.

Donald Grimes, an economic forecaster at the University of Michigan, said his colleagues have been discussing the risk the Delta variant poses to the economy, but so far the consensus has been to leave projections unchanged.

“Our forecast already expected some local outbreaks to occur," he said. “You haven’t seen the closures, and the related decrease in demand, and that’s what caused the economy to contract last year."

It isn’t likely state and local governments will reimpose broad restrictions, Mr. Grimes said. Governors and other officials are under pressure to keep their economies open, and vaccinated people could balk at following restrictions intended to keep unvaccinated people safe when Covid-19 vaccines are widely available.

Still, there are some possible responses to the Delta variant that could result in a modestly less robust recovery, he said.

Universities, private venues and sports leagues, for example, could impose new restrictions on large gatherings, which could reduce economic activity in local areas. Some employers may opt to not fully reopen offices, which could damp an anticipated fall boost in spending on everything from gasoline and transit to coffee and after-work beers as more workers return to central business centers. Conference organizers also may opt to postpone or cancel fall and winter gatherings, slowing the improvement in business travel, Mr. Grimes said.

Economists expect hiring to continue at a historically strong pace, with job openings at record highs and layoffs trending lower.

Still, the Delta variant could make it harder for the labor market to regain ground if it adds to uncertainty for people in determining how and when to come off the sidelines and return to work, said Marianne Wanamaker, an economist at the University of Tennessee, Knoxville.

While the U.S. added jobs at a strong rate in June, the economy overall still had 6.8 million fewer jobs than in February 2020.

There is a “hesitancy for workers for whom taking on employment is a reorienting of everything in their lives," Dr. Wanamaker said, referring to issues such as arranging child care. “When you’re uncertain, it is really hard to leave the inertia of where you are and switch into some new thing not knowing whether that new thing is going to hold or not."

This story has been published from a wire agency feed without modifications to the text

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