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A ‘delta’ chill in the air? The economy is still booming, but it faces new uncertainty

The US economy was on fire this spring and this summer is still pretty hot, but a new strain of coronavirus is threatening to chill the recovery.

Worries about the so-called delta virus sent shivers through investors last week after the number of people infected with the virus rapidly rose from pandemic lows. Stock market
DJIA,
+0.68%

posted the biggest drop in nearly 10 months before recovering and bond yields also fell.

While the US Covid recharge rate remains fairly low, the delta variation has introduced new uncertainty in the economic outlook and forced households, businesses and governments to consider how to respond. .

The reactions so far? Not much. Los Angeles County has recommended that people wear masks again, but this is one of the few governments to do so.

Overall, the delta variant produced a wait-and-see response. Just look at the stock market. The Dow Jones Industrial Average has recovered all of its losses in just a few days and is back to all-time highs.

It seems the main reason for optimism is that the White House and the Federal Reserve will do whatever it takes to keep the economy growing.

“As long as the government and the Fed continue to pump things up, it’s hard to see the market going down for a long time,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Massive government fiscal stimulus measures played a huge role in what is expected to be very strong US economic activity in the second quarter. Economists polled by The Wall Street Journal estimate that gross domestic product jumped at a 9.1% annual rate between April and June.

See: Economic Calendar MarketWatch

That would be one of the strongest U.S. growth rates ever and help offset the devastating economic damage early in the pandemic. GDP, the official scorecard of the US economy, will be released on Thursday.

More important, of course, is what happens next. GDP is mostly seen in the rearview mirror.

Other reports next week are likely to suggest that the US will maintain its recent growth momentum. Consumer spending data and orders for manufactured goods for June are also expected to point to fundamental strength in the economic recovery.

Read: Takeout and dine-in never became popular – how US restaurants survive and even thrive

Households are spending comfortably and businesses cannot keep up with demand. One of their biggest problems is finding enough workers.

What about the delta strain?

So far most of those who are catching it are unvaccinated. Meanwhile, so-called parachute ruptures among those vaccinated, did not cause many serious reactions or deaths.

So it seems the prognosis for the broader economy – not to mention public health – remains pretty good with more than 68% of the US adult population having received at least one shot.

However, if there is one thing that has been learned during the pandemic, then nothing can be taken for granted. For example, the virus could mutate again, or individuals, businesses, and governments could adopt defensive measures that take some part of the recovery process away.

Perhaps the most real danger now is that the delta variant will spread faster around the world and further disrupt global supply chains already strained by the pandemic.

These supply chain problems – one notable example being computer chip shortages – could exacerbate the rise in US inflation this year and add to costs for consumers as well. like businesses.

Rising inflation is hurting Americans’ finances and eroding confidence in a recovery. A key inflation report next week, known as the PCE price index, due out on Friday, is expected to show another big gain.

For its part, the Fed is likely to try to reassure consumers and investors next week that the spike in inflation is temporary after its latest big meeting on the economy. That’s been the Fed’s mantra for months.

Read: Prices are skyrocketing and Americans aren’t happy about it

Also: Cost of living increases the most since 2008 as inflation spreads

However, the central bank has underestimated how much prices will rise this year, and even some of the top Fed officials are starting to worry.

https://www.marketwatch.com/story/a-delta-chill-in-the-air-the-economy-is-still-booming-but-it-faces-new-uncertainty-11627061209?rss=1&siteid=rss | A ‘delta’ chill in the air? The economy is still booming, but it faces new uncertainty

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