Delta variant, reduced spending on services, inflation throw wrench into economic recovery

Low economic growth will likely be a defining feature of the U.S. economy and in much of the developed world as the global coronavirus pandemic stretches into 2022. Although airlines still expect business and leisure travel segments to recover, they are dimming previously rosy recovery forecasts. “The variant has caused a bit of a pause on some segments of our business, particularly our business travel,” said Ed Bastian, CEO of Delta Air Lines at the Annual Global Transportation and Sustainability Mobility Conference on Sept. 9. Domestic business travel demand had been expected to surge post-Labor Day. “It’s probably about a 90-day plus in return to travel for that next leg up that we were expecting to see, but it’s coming.” International travel is expected to follow a multi-year recovery trajectory. However, a November end to the United States’ travel restrictions levied on 33 counties , is a welcomed development. Factors underpinning this slow growth, which is expected to range from 1% to 2%, include high government debt, increased global demand coupled with stressed supply chains and the realization that economies will have to consider the pandemic’s impact on business operations for the foreseeable future. Economic forecasts predict the U.S, economy to return to its baseline growth rate of 1.5% to 2% in the second half of 2022. For 2021, U.S. economic growth will be slightly above 6%. Additionally, COVID-19’s Delta variant has slowed economic growth and the Federal Reserve is expected to raise interest rates. U.S. spending on consumer services like haircuts, auto repairs, and landscaping are trending downward, and spending on consumer goods is unlikely to replace that revenue, according to a Sept. 16 economic forecast from global advisory service Deloitte. “In short, the Delta variant is not going to derail the economic recovery,” Deloitte’s report noted. “But Delta definitely clouds the near-term outlook and serves as a reminder that our low-growth scenarios are a real possibility.” Even though federally funded unemployment benefits are being phased out in several states, economic stimulus for consumers and businesses will still be a factor in U.S. economic growth, according to a Sept. 7 forecast from Dallas-based commercial financial institution Comerica. “Advance Child Tax Credit payments began on July 15th, paying many qualifying households $250-$300 per month per child,’ Comerica said. Meanwhile, the U.S. House of Representatives is expected to vote on a nearly $1 trillion infrastructure package by Sept. 27 and has passed a $3.5 trillion budget plan that will allow for a significant expansion of government social programs, Comerica added. The final dollar amount of these bills will be determined through committee reconciliation and presented to the U.S. Senate for a vote. Specific spending bills encompassed by the budget plan remain to be passed, and an expected increase in the federal corporate tax rates and other taxes will help pay for the increased federal spending, Comerica noted. While some fiscal hawks are alarmed by the U.S., EU and Japan borrowing huge amounts of money to prop up their economies, their debt servicing — or the sum of the interest and principal on their loans — remains manageable, the Economist Intelligence Unit said in a May 19 report. And despite an expected jump in Inflation for 2021, as the global economic recovery gets underway interest rates are expected to stabilize from 2022 to 2025, that report notes.

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