National Post (National Edition)
Delta variant poses major risk to Biden's promises of swift economic comeback
Restrictions may be reimposed in some areas
• A resurgence in coronavirus cases is threatening the Biden administration's promises of a swift economic recovery, with Wall Street getting battered on Monday and some leading forecasters beginning to rethink their extremely rosy projections.
The Biden administration is closely monitoring the economic risks associated with the Delta variant, and senior U.S. officials have in recent days suggested local restrictions may have to be reimposed in response to the pandemic.
“This virus doesn't have to hold you back any longer. It doesn't have to hold our economy back any longer. But the only way we put it behind us is if more Americans get vaccinated,” President Joe Biden said Monday.
As the vaccination campaign progressed through spring and summer, the White House touted predictions that the U.S. economy would roar back to life as consumers quickly returned to pre-pandemic spending. Biden has repeatedly stressed that the economy is set to grow at its fastest pace in almost four decades.
But the Delta variant may challenge those heady expectations, threatening the recovery along several dimensions. The ongoing pandemic could dampen consumer spending if fears re-emerge about the safety of returning to some activities. The variant's proliferation abroad has already hurt U.S. supply chains, and shortages could exacerbate inflation by increasing the price of production. And a jump in hospitalizations and deaths among the unvaccinated poses a particular challenge for the Biden administration in more conservative parts of the country, where resistance to new restrictions is strong and federal relief aid is starting to expire.
These tensions played out in public on Monday, with Biden emphasizing his infrastructure package — the White House's first big nonCOVID legislative priority — amid headlines showing financial markets getting clobbered by renewed fears about the coronavirus.
“Our economy has come a long way over the past six months. We can't slow down now,” Biden said.
Monday's 726-point decline in the Dow Jones industrial average was the worst one-day retreat in 2021. The S&P and Nasdaq also fell sharply. Among the hardest hit were sectors of the economy sensitive to virus-related concerns, such as hospitality, leisure and travel.
Wall Street rebounded on Tuesday, with all three major U.S. stock indexes up more than one per cent, and the blue-chip Dow, on the heels of its worst day in nine months, leading the charge.
“The markets were sold off for a number of reasons, most related to the surge in the Delta variant and concerns about the economy,” Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, told Reuters Tuesday.
“But now the market is roaring back,” Ghriskey added. “It shows the overall strength of the market. Even with bad news, this market shows amazing strength.”
Still, fears are in particular intensifying over whether the Delta variant will hurt the global economy, which could in turn complicate the U.S. recovery. Indonesia faces a “catastrophic” surge in the virus threatening to overwhelm its medical system. British Prime Minister Boris Johnson went back into quarantine after his health secretary tested positive. Iran's government announced a week-long lockdown in its capital. Cases globally have risen markedly since June.
“The global economy is barely surviving on life support, and another wave of infections may spur lockdowns that could signal the death knell for the tenuous recovery,” said Peter Essele, head of investment management at the Commonwealth Financial Network.
Other leading analysts are also beginning to get nervous. “It's a serious threat, no doubt about it,” said Mark Zandi, chief economist at Moody's Analytics and one of the economic voices most trusted by the White House. “I haven't marked down my forecast yet, but I'm on the cusp of doing so.”
Economists diverge on the extent to which the Delta variant poses a danger to the U.S. economy.
Just under half of Americans are vaccinated, and the evidence is overwhelming that the vaccines prevent hospitalizations and deaths. Few people expect there to be the political appetite for renewing the kind of shutdowns that put the economy into a deep freeze at the pandemic's outset. That will probably limit the amount of damage the Delta variant can inflict on the economy.
Even with the renewed concerns, many economists stressed the U.S. economic growth outlook is stronger than it has been in years. Federal policy-makers poured trillions of dollars in federal aid into the economy, including Biden's US$1.9-trillion relief plan — funding that is now propelling higher demand from consumers eager to resume normal life.
One senior Biden administration official, speaking on the condition of anonymity to discuss internal thinking, said officials still see key economic indicators — such as frequency of flights and restaurant spending — climbing back to pre-pandemic levels.
White House press secretary Jen Psaki said Monday that 99.5 per cent of people who are being hospitalized or dying of COVID are not vaccinated, and she continued to urge more Americans to get the shots. She stressed that the administration remains confident in a swift economic recovery.
“We certainly have seen the movements in the stock market; we also know that unemployment is down, economic growth is up, job creation is up,” Psaki said. “We can assure people we are still at war with the virus, even if we have made progress over the last several months.”
Still, major concerns persist. Already, orders are delayed for months on furniture, appliances and microchips and other home-building and manufacturing supplies. U.S. home builder confidence fell to an 11-month low in July, largely because builders are struggling to get the materials they need. The delays aren't just causing headaches, they are forcing some builders to halt construction, putting business and jobs at risk in the United States.
There is unlikely to be any supply chain relief until early next year at the earliest, warns Phil Levy, a former Bush administration economist who is now chief economist at freight company Flexport. Containers that were supposed to ship this spring are still sitting in many Asian ports.
A recent coronavirus outbreak at the popular Yantian port in China caused a massive backlog of containers. More disruptions from the Delta variant or another version of the virus could be even more problematic because the shipping industry is about to hit its peak time to move goods so they arrive in time for the all-important holiday shopping season.
“There's not relief right around the corner,” Levy said. “This is rush hour all the time for moving goods around. A little accident during rush hour has even bigger effects.”
Jason Furman, a former Obama administration economist, noted that the Delta variant's spread across Europe did not appear to lead to major declines in mobility trends, a gauge of consumer patterns.
“The rise of Delta is potentially a human tragedy; I don't expect it to be hugely consequential macroeconomically,” Furman said. “The U.S. economy is going to grow strongly every quarter this year. Will it be a little less strong because of this? Maybe. But I still expect economic growth to be above its pre-pandemic the rest of this year, and I don't think that changes that fundamental fact.”
Dean Baker, a liberal economist, agreed that the impact of lingering coronavirus concerns would probably amount to “tenths of a percentage point” in terms of economic growth. But he cautioned that this would not be true should a variant emerge that the existing vaccines do not fully protect against. That possibility could upend the global economy, creating major headwinds in the United States.
“We have been so cavalier about vaccinating the world, and we could have done so by now — that's the real danger,” Baker said. “We have to take it very seriously, the priority to get the whole world vaccinated as quickly as possible.”
IT'S A SERIOUS THREAT, NO DOUBT ABOUT IT.