The rapid spread of the delta variant has sown volatility in financial markets this week, but thus far economists are maintaining their forecasts for an historically strong U.S. recovery.
Key to their relative confidence: officials are unlikely to order renewed lockdowns, and most consumers won’t drastically alter their plans. Any change in that assessment, and bets are off.
“The delta variant is posing a growing risk, but it’s probably not to the point that we should be making big, negative changes in our outlook,” Claudia Sahm, a former Federal Reserve economist who’s now a senior fellow at the Jain Family Institute, said in an interview. The outbreak has largely affected the unvaccinated so far, but Sahm said if it keeps spreading, “we’re going to find out a lot more about how much of that impacts the vaccinated and how much it freaks them out.”
For now, the rough consensus is that spending, travel and business activity will only be affected at the margin. Even late last year, when waves of Covid-19 cases hit the U.S., the recovery continued apace.
U.S. GDP is on course to jump 6.6% this year, and quarterly growth rates will be handily beating the average of the past decade well into 2022, Bloomberg surveys of economists show.
Andrew Husby at Bloomberg Economics highlights three factors that give him some confidence:
• While Covid-19 cases have been surging, hospitalizations and deaths haven’t.
• The biggest impact has been in areas of lesser economic importance, such as some southern U.S. states.
• Some of the groups most at risk are least likely to change behavior.
Nationwide high-frequency data show that Americans continue to spend and eat out at restaurants, as seen from compilers including OpenTable. New York City last week saw demand for hotel rooms hit its highest since the pandemic hit.
Still, there are inklings of potential change: Los Angeles County has reimposed a mask mandate. Apple Inc. delayed its office reopening. In markets, longer-term Treasury yields—those most sensitive to the outlook for growth—on Thursday were heading for a fourth straight week of declines.
Following are the comments of a number of economists on the delta variant’s economic impact:
‘Fluid Situation’
“So far, we haven’t seen any impact in the U.S. when it comes to real-time data,” said Aneta Markowska, Jefferies chief U.S. economist, by phone. “In fact, it looks like momentum actually improved in June, with foot traffic in particular. And that requires the opposite of social distancing.”
If Covid-19 “spikes stay localized, it’s hard to imagine a big national impact. Is a school reopening in New York State or in California going to be delayed because of a localized outbreak in Louisiana? Probably not. Obviously, it’s a fluid situation. It changes the risk profile, but it doesn’t change the base case for the U.S. outlook.”