Is America Facing Slowing Economic Growth?
IIT WAS INEVITABLE that global economic growth would slow from the breakneck pace set as economies recover from the pandemic. Lately, investors have started to worry about something worse: that the US economy, which led the rich world’s rebound, could decelerate sharply. Along with supply bottlenecks and the withdrawal of economic stimulus, the country, like many others, now faces the ultra-infectious variant of the Delta. A painful slowdown is unlikely. But the new spread of the virus is the greatest of these three dangers.
To see how the latest waves of the rich world’s coronavirus are likely to unfold, consider that on July 20, America reported a seven-day moving average of 112 new cases for every million people. This is roughly where Britain, with a higher vaccination rate, more restrictions and deadlier past epidemics, was in mid-June before Delta kicked off. Britain now has 699 cases per million, the fifth highest rate in the world. If everything else is equal, Delta will spread two or three times faster than the original strain of the virus.
Fortunately, vaccines prevent almost all severe cases of illness and treatments have improved, saving more lives among those infected. This is why England lifted almost all restrictions on July 19. But vaccines still let many symptomatic infections pass through the net: 12 to 21% of them for the Pfizer shots that America has used the most. The delta is so contagious that countries will struggle to get vaccinated to meet the herd immunity threshold that stops the spread of the disease, even after successful campaigns. Since 44% of Americans of all ages have not received a single dose, cases in the United States are likely to skyrocket. States like Mississippi and Louisiana, where about three in five people are not vaccinated at all, are at risk of sudden and severe epidemics.
The economic consequences of this situation will depend on the reaction of policymakers and consumers. So far, Los Angeles has cut back its mask tenure and New Orleans says it is exploring further restrictions. Even though vaccines allow policymakers to avoid reverting to strict measures, consumers may be too eager to visit bars and restaurants. In Britain, mobility measures have only declined slightly since June, but the experience is still new. Exponential growth means things can change quickly.
Delta’s risk is more troubling than the other issues facing the US recovery; this supply will struggle to match demand and the stimulus measures must be removed. As long as the economy remains open, it can overcome these obstacles.
Shortages, especially of microchips and space on container ships, pushed consumer price inflation to 5.4%. Real wages have fallen over the past year as rising prices have eroded the purchasing power of workers and there are signs that inflation is starting to worry consumers. But during the pandemic, households accumulated an additional $ 2.5 billion in savings, the equivalent of 12% of GDP in 2019. In June, a record number of Americans told Gallup, a pollster, that they themselves were thriving financially. It can be difficult to get your hands on a decently priced car, but as long as Americans venture out of their homes, the service sector can fuel the economy.
Withdrawing some forms of stimulus may even help. Service industries lack labor. The end of subsidized unemployment benefits, which will become universal at the end of September, could bring some of them back to the job market. Other political loopholes, such as the cancellation of the moratoriums on evictions at the end of July, are a source of uncertainty. But any pain there is more likely to be concentrated than widespread, as the housing market is booming and job openings are plentiful.
For the economic recovery to continue, people must be prepared to mix with others. Yet in America and around the world, this is precisely what the Delta variant puts at risk. ■
All of our pandemic and vaccine related stories can be found on our coronavirus hub. You can also find trackers showing the global vaccine rollout, excess deaths by country, and the spread of the virus in Europe and America.
This article appeared in the Leaders section of the print edition under the title “Delta’s beta”