COVID-19

Economic Hopes Are Dashed by the Delta Variant

by
Julie Farless
on
9/24/2021
Economic Hopes Are Dashed by the Delta Variant

Economists hoping for continued growth through 2021 are reassessing and resigning themselves to a cooling off of the expansion seen in the second quarter. The unexpected surge of the Delta variant has led to a drop-off in travel, events being canceled, businesses rethinking their re-openings, and a general sense of uncertainty that has halted hiring and generally diminished consumer confidence. 

The experts are confident that we are not headed for another recession, basing their predictions on the strength of economic fundamentals including robust consumer savings, growth in productivity, and a cautious (if muted) return to many pre-pandemic norms such as attendance at concerts and sporting events. But with masks reappearing in public places, the much-awaited return to school marred by closures and quarantines, and the rate of COVID-19 hospitalizations and deaths on the rise, the economic recovery will come at a much slower rate of growth than was heralded in the spring.

What is being termed a “September slowdown” by the Wall Street Journal can be measured in ways big and small. Major employers including Wells Fargo, Amazon, Lyft, and Dell have announced that plans for employees to return to their offices have been pushed back indefinitely. Business travel has not resumed, and though leisure traveler has rebounded from the lows seen last year, they are nowhere near where they had been – and the potential for vaccination mandates looms. Some employers have put a pause on hiring as they wait for consumer demand to rebound, while others continue to struggle with hiring — the all-important restaurant industry is seeing employment gains, but the National Restaurant Association's senior vice president of research and knowledge says that 75% of restaurant operators continue to cite recruiting and retaining workers as their top business challenge. 

Though the problems being felt by different sectors of the economy are diverse, they are all being blamed on the fast spread of the Delta coronavirus variant. Where stimulus payments, the availability of vaccines, and pent-up consumer demand all contributed to significant growth in the first half of 2021, the heights and hope for normalcy seen in the springtime have given way to uncertainty and a slowdown.

The greatest impact is likely to be felt by small businesses and their employees, which had been enjoying a significant rebound in sales prior to the resurging virus. But a Homebase survey of 60,000 businesses and one million employees revealed that declining consumer foot traffic and deaths and illnesses among the unvaccinated led to employment dropping by 4% between July and August, with 2.5% of participating businesses permanently shuttering. At the same time, consumer confidence hit a six-month low: Americans showed signs of spending more on necessary goods like groceries and gasoline but also of eating in, canceling travel plans, and holding off on the purchase of appliances and automobiles. Interestingly, that same measure ticked up slightly in September.

Beyond the effects being seen and felt on Main Street, supply chain issues are further contributing to economic slowdowns, especially as holiday shopping ramps up. Even in the face of diminishing hope for the end of the pandemic, consumer expectations surrounding gift-giving are likely to be dashed by factory shutdowns and warehouse and retail staffing issues. Anybody who has tried purchasing furniture in the last several months has encountered shortages and long backorders. Asian factories are struggling with their own COVID-related employment issues, and these problems are exacerbated by slowdowns in shipping and trucking caused by pandemic-related employee shortages. Though major retailers are predicting 20% more inventory than they had during last year's holiday season, they are concerned about the time that it will take to restock emptied shelves.

As disappointing as the slowdown has been, the overall outlook for the economy is still strong, with financial experts offering assurances that the Delta variant will not have the same dramatic effect that the first phase of the pandemic created. An AICPA survey revealed that more than half the CEOs and CFOS surveyed remain optimistic about the year ahead, and though this is down from a high of 70% last spring, that drop is specifically related to fears about the virus. Daniel Bachman, Senior Manager at Deloitte Services, reminds us that though breakthrough infections are a reality, more than half of the population has been vaccinated and the economy will not shut down again as it did in early 2020. Productivity per worker is strong and expected to grow, and though the five-year GDP baseline prediction is lower than it had been, it is still expected to stay above its pre-pandemic levels, especially if vaccination levels continue to rise. 

Though consumer fears of an economic slowdown, of rising prices, and of the virus itself may have slowed spending and impacted expenditures on restaurants, travel, and entertainment, there is a strong sense that these effects are temporary and that spending reticence will be followed by a significant rebound in 2022.

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Julie Farless

Julie Farless

Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services, but we specialize in tax preparation. We work with you to ensure that your personal or business processes are conducted in a manner that ensures ongoing integrity in your financial transactions. We are available to answer your questions and help with your ongoing tax planning and changing business needs.

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