“The COVID-19 Delta Variant is casting shadows of uncertainty over the economy’s outlook for the next several months,” according to Dick Storat in his recent Scoring Boxes newsletter. Storat said estimates of GDP for the year are being trimmed back, but there is still enough stimulus in consumer’s wallets to produce economic gains above 5.5 percent for the entire year.
“While the manufacturing sector in general continues to advance, it is facing headwinds, keeping output below its potential,” noted Storat. “An extreme shortage of labor has limited operations and the lengthy deliveries of parts and materials along the badly disrupted supply chain have added to the difficulty.”
While the corrugated box making industry reflects the manufacturing climate, an informal survey of converters reveals that generally speaking, “business is booming” and the trend will continue until backlogs are conquered, which is to say the upward production trend will continue, that is, unless the Delta Variant intervenes.
“While it seems unlikely that the variant would become so disruptive that it undermines the recovery, there are mounting reasons to be worried that it may become a significant headwind to near-term economic growth,” noted Mark Zandi, Chief Economist at Moody’s Analytics. “Consumers are increasingly nervous about the variant, sparking concerns they will turn skittish in their spending. Retail sales for July declined, while the University of Michigan’s survey of consumer sentiment pulled back sharply in early August and is now lower than it was during the worst of the pandemic last spring. Spiking inflation isn’t helping consumers’ moods.”
Businesses’ expectations regarding the economy’s prospects for the remainder of this year have also diminished significantly. The number of respondents to a Moody’s survey say the economy will continue to improve has declined from more than 60 percent to less than half, and those that say the economy will weaken has increased from near 30 percent to more than 40 percent. This hasn’t impacted businesses’ hiring and investment decisions yet, according to the survey, but it bears watching, as the job market and broader economic recovery would be in jeopardy if businesses pull back on hiring and investments.
“The Delta Variant should also serve as notice that there will likely be more variants that may be more contagious and virulent,” said Zandi. “The higher the percentage of the population that remains unvaccinated, the more likely this will happen.”