A recent Gallup poll revealed that 29% of American citizens believe the pandemic to be over already. However, there is a split between those of different political affiliations, with 57% of self-identifying Republicans and only 4% of Democrats sharing the same view. There is also some variation in the expected impacts of the Delta variant, with those yet to be vaccinated saying that they are not concerned about this strain of the virus.
The official health statistics reveal the daily infection rate to be at the highest level since February. And although the vaccination rate remains relatively high, America is still behind the major European countries in terms of the percentage of the population to have been vaccinated.
While the unvaccinated may be oblivious and continuing their everyday lives as normal, there has been a distinct decrease in the mobility and spending of those to have been given their Covid jabs. The economic toll of the Delta variant is becoming increasingly clear, with the University of Michigan revealing that consumer confidence is at its lowest level since April 2020.
How resilient will the American economy prove?
While sharing in the Republican belief that Covid will be with us for the foreseeable future, Federal Reserve Chairman Jerome Powell has stated his confidence in the resilience of the US economy.
Participating in a virtual question and answer session, Powell said, “it’s not yet clear whether the Delta strain will have important effects on the economy. COVID is still with us… and that is likely to continue to be the case for a while. [However] people and businesses have improvised and learned to adapt, to live their lives despite COVID.”
The positive sentiment has been echoed by well-respected American economists, who’ve said that it’s still too early to give any definite forecasts when it comes to the economic effects of the variant.
Notable signs of an economic rebound have included a gain of 943,000 jobs and an increase of 0.9% in industrial production for the month of July. However, the employment data was gathered before the Federal Health Officials urged all Americans to wear masks indoors, regardless of vaccination status.
And questions have been raised over the effects of the Delta variant upon the recent 1.1% drop-off in retail sales. Other explanations included the decreased impact of fiscal stimulus and subsequent consumer spending.
How are American investors responding?
News of the Delta variant has had a negative impact on the confidence of American investors. This became apparent when the benchmark S&P 500 index fell by the most in a month last week. Despite a slight rebound, Goldman Sachs saw fit to cut the quarterly US growth outlook to 5.5% due to the expected impacts of the continuing pandemic.
Economic confidence has also been eroded in part due to the expectation of emergency stimulus measures being cut by the Federal Reserve policymakers. And financial managers have said that there’s very little chance of stocks rising beyond current levels. It’s little wonder that investors have been favouring derivatives that are expected to give some financial protection against the anticipated drop in equity value.
Jim Tierney, Portfolio Manager at AllianceBernstein said, “the market is at all-time highs. Look at where we’ve come in a year… Look at the elevated price-to-earnings ratios. You put a lot of that together and people are just nervous and their inclination is, ‘Let me take a little money off the table.’ ”
Jonathan Millar, Senior US Economist at Barclays said, “Covid risks are re-emerging as a really important downside risk. It is back on the [Fed’s] radar and gives them the freedom to put a hold on tapering.”
While there’s some reason for positivity, the continuing uncertainty over the impacts of the Delta variant is likely to dampen the recovery of the US economy in 2021.
