Delta Nibbles Away at US Economic Outlook

With the Delta variant of COVID-19 raging, there are now questions about an economic recovery that was once seen as inevitable.

The variant is already hindering some buying behavior and hitting consumer confidence hard, according to a new report by Morning Consult, which says consumer confidence has fallen sharply since the beginning of July, dropping 4.6%. Overall, consumer confidence is at its lowest point since March 9, 2021, and just went through its most significant three-week decline since November 2020, when the third wave of COVID infections was tearing through the country.

Restaurants provide an example of how sharply consumer confidence has declined. The share of adults comfortable going out to eat at a restaurant or café dropped three percentage points to 68% from early July to July 24.

“If consumers increasingly opt to stay away from activities they deem too risky, sales at businesses such as restaurants, hotels, gyms and airlines are likely to suffer, potentially undermining the recovery in the service sector and the U.S. economy as a whole,” Morning Consult writes.

The Delta variant could keep some workers on the sidelines of the job market, which is in the midst of a tumultuous cycle.  

After what it called “remarkable gains” in the first 12 months of the year, Morning Consult noted the employment-to-population ratio fell to 46.3% in July, which was the lowest mark since early February. In addition, the share of restaurant and hotel workers reported lost pay increased in July after it had been improving.

It says one cause of elevated lay-offs may be what it calls “matching frictions.”

“Employers are so desperate to fill positions that they extend offers to workers who are suboptimal candidates, leading to additional churn in labor markets,” Morning Consult writes.

With many workers forced to find jobs with new employers or in new industries, Morning Consult thinks this trend is likely to continue longer than it usually would.

The Delta variant is also surging at a pivotal time in many people’s finances, namely the impending end of federal relief. 

Morning Consult says there is no evidence of financial vulnerability increasing due to the early termination of federal unemployment benefits in some states. But it notes that it could take a few months before financial vulnerability increases.

Overall, the share of Americans without the savings to cover their basic expenses for an entire month fell in July to 21.9%. In June, it was 22.5%. While high-earning adults saw an increase in credit card debt last month, 27% of lower-income adults reported more credit card debt in June. That percentage matches the high watermark of this year last reached in January 2021, according to Morning Consult.

To be sure, in the big picture the US economy is doing well, following a strong second quarter for growth. GDP posted one of its biggest jumps ever—6.5%. Take away the giant 33.4% bounce back from the pandemic in the third quarter of 2020, and it was the strongest quarter since 2003.