The Delta variant of the coronavirus probably won’t derail the U.S. economy. That doesn’t mean it can’t damage parts of it.
For a while, America’s progress against the Covid-19 pandemic looked very good. Millions of people were getting vaccinated each day, Covid-19 cases, hospitalizations and deaths were falling, and a return to something like normal beckoned. But then the vaccine rollout slowed markedly just as the far more contagious Delta variant took hold. Cases, hospitalizations and deaths have begun to rise.
It is tempting to imagine the Delta variant won’t dent the economy at all.
Across the board, state and local officials seem far less apt to dial up restrictions in response to rising Covid-19 cases than they were a year ago, while the places with low vaccine uptake also happen to be the places that are most resistant to restrictions. Moreover, many people are vaccinated—particularly the elderly—and with the apparent efficacy of current vaccines against the Delta variant, the U.S. seems unlikely to revisit the staggering mortality statistics of the sort it experienced before vaccines became widely available. Finally, the savings many Americans built up over the past year left them with ample money to throw around, while businesses’ scramble for workers points to a labor market that should keep generating income gains.
Those are all things that should ensure the economy continues to grow, but it probably won’t grow as swiftly as it otherwise could have. Worries about the Delta variant will lead some people to refrain from entering crowded settings, such as restaurants or airplanes, while also making them more cautious about spending down any savings. Some companies will delay their return to the office, as Apple just did, and that will hurt downtown restaurants and the like that depend on office workers’ business.
Bear in mind that the places where vaccine hesitancy is high and Covid-19 worries low aren’t monolithic: Some share of the population will up their caution, in some cases even if they are fully vaccinated for fear of a breakthrough infection. And the more new cases there are in their communities, the more cautious they will become.
Nor are places where vaccination rates are better necessarily going to avoid the fallout from the contagious Delta variant. Around 72% of the 18 and over population of Los Angeles County have received at least once shot, more than the country at large, yet with case rates and hospitalizations rising, last week it reinstated an order to wear masks indoors in businesses and public places.
Then there is the question of what the start of the coming school year might look like. Children under the age of 12 aren’t eligible for vaccination, and authorization for children between 5 and 11 looks as if it won’t come until sometime in the fall, at the earliest. Most schools intend to return to in-person classes, with some offering remote options, but the Delta variant could upend some of those plans.
At the very least parents might need to prepare for the possibility of a positive Covid test shutting down a classroom, leaving their children, and them, stuck at home. Strategists at Evercore ISI point out that the return to school this fall was supposed to free parents for work, boosting the labor supply. But some of the job growth and easing of hiring strains that could create might now be deferred.
The economy has been growing since April last year—a point brought home by the National Bureau of Economic Research’s recent determination that that was when the brief, severe recession the pandemic brought on ended. It kept growing despite a new surge in Covid-19 infections last summer and another wave in the late fall through winter. Unlike in those previous surges, many Americans have been vaccinated so the impact won’t be as severe as it otherwise might have been.
But things could have been so much better.
Companies are working on coronavirus booster shots, as some early studies suggest antibody levels against Covid-19 wane with time, making boosters more necessary. We explore what that means for individual consumers. Illustration: Laura Kammermann/The Wall Street Journal
The Wall Street Journal Interactive Edition
Write to Justin Lahart at email@example.com
Fed Considers Tapering Bond Purchases as Economy Grows – The New York Times
Federal Reserve officials are gathering in Washington this week with monetary policy still set to emergency mode, even as the economy rebounds and inflation accelerates.
Economists expect the central bank’s postmeeting statement at 2 p.m. Wednesday to leave policy unchanged, but investors will keenly watch a subsequent news conference with the Fed chair, Jerome H. Powell, for any hints at when — and how — officials might begin to pull back their economic support.
That’s because Fed policymakers are debating their plans for future “tapering,” the widely used term for slowing down monthly purchases of government-backed debt. The bond purchases are meant to keep money chugging through the economy by encouraging lending and spending, and slowing them would be the first step in moving policy toward a more normal setting.
Big and often conflicting considerations loom over the taper debate. Inflation has picked up more sharply than many Fed officials expected. Those price pressures are expected to fade, but the risk that they will linger is a source of discomfort, ramping up the urgency to create some sort of exit plan. At the same time, the job market is far from healed, and the surging Delta coronavirus variant means that the pandemic remains a real risk. Policy missteps could prove costly.
Here are a few key things to know about the bond-buying, and key details that Wall Street will be watching:
The Fed is buying $120 billion in government backed bonds each month — $80 billion in Treasury debt and $40 billion in mortgage-backed securities.
Economists mostly expect the central bank to announce plans to slow those purchases this year, perhaps as soon as August, before actually dialing them back late this year or early next. That slowdown is what Wall Street refers to as a “taper.”
There’s a hot debate among policymakers about how that taper should play out. Some officials think the Fed should slow mortgage debt buying first because the housing market is booming. Others have said mortgage security buying has little special effect on the housing market. They have hinted or said they would favor tapering both types of purchases at the same speed.
The Fed is moving cautiously, and for a reason: Back in 2013, markets convulsed when investors realized that a similar bond-buying program after the financial crisis would slow soon. Mr. Powell and crew do not want to stage a rerun.
Bond-buying is just one of the Fed’s policy tools, and is used to lower longer-term interest rates and to get money chugging around the economy. The Fed also sets a policy interest rate, the federal funds rate, to keep borrowing costs low. It has been near zero since March 2020.
Central bankers have been clear that tapering off bond purchases is the first step toward moving policy away from an emergency setting. Increases in the funds rate remain off in the distant future.
IMF warns of growing poverty, unrest and geopolitical tensions – Al Jazeera English
The global economic recovery continues, but with a widening gap between advanced economies and many emerging market and developing economies thanks to vaccine inequity and a lack of fiscal support, the International Monetary Fund (IMF) warned on Tuesday
While the latest update to the IMF’s World Economic Outlook sees the global economy still growing 6 percent this year – unchanged from its April estimate – Chief Economist Gita Gopinath noted that the composition of the recovery continues to change.
“The recovery is not assured until the pandemic is beaten back globally,” Gopinath told reporters during a virtual press conference as she presented the latest outlook titled Fault Lines Widen in the Global Economy.
The IMF sees global growth decelerating to 4.9 percent next year. Advanced economies are expected to achieve 4.4 percent growth in 2022 – down from 5.6 percent in 2021 – while growth in emerging and developing economies is seen slowing to 5.2 percent in 2022 from an expected rebound 6.3 percent in 2021.
Rich, emerging and developing nations all took an economic beating last year when the coronavirus pandemic forced governments to close borders, shut businesses and idle manufacturing hubs worldwide.
As countries rolled back COVID restrictions this year, growth forecasts jumped as people emerged from lockdowns and unleashed pent-up demand for products and services. That demand surge though is expected to moderate next year.
Developed economies armed and shielded with a healthy supply of COVID-19 vaccines and fiscal firepower have managed to open up businesses and resume operations. But the emergence of new COVID variants and infection spikes laces uncertainty into the recovery path.
Growth in the US, the world’s largest economy, is seen slowing to 4.9 percent in 2022 after a bounce back of 7.0 percent expected this year. Europe is also expected to slow to 4.3 percent in 2022 from 4.6 in 2021.
Growth in the Middle East and Central Asia is expected to decelerate to 3.7 percent next year from 4.0 in 2021, while emerging and developing Asian economies are expected to dip more than a point from 7.5 in 2021 to 6.4 in 2022.
Latin America and the Caribbean are forecast to experience the sharpest fall from 5.8 percent in 2021 to 3.2 in 2022 after plummeting 7.0 in 2020.
Sub-Saharan Africa is the only region that is expected to see growth climb – from 3.4 in 2021 to 4.1 percent in 2022.
Vaccines & trillions in fiscal support
Vaccine inequality is seen as a chief driver of the widening gulf between recoveries in developed and less developed economies.
Close to 40 percent of people in advanced economies have been fully vaccinated compared with only 11 percent in emerging market economies and a tiny fraction in low-income developing countries.
Fresh waves of COVID-19 cases this year, notably in India are a major source of the deepening inequality between rich and poor nations.
“The emergence of highly infectious virus variants could derail the recovery and wipe out four and a half trillion dollars cumulatively from global GDP by 2025,” Gopinath warned.
To make matters worse, poor countries and even emerging markets lack access to the funds necessary to jolt economies back to health. Advanced economies, on the other hand, passed $4.6 trillion in fiscal support for 2021 and beyond. In developing economies, most measures expired last year.
And some emerging markets like Brazil, Hungary, Mexico, Russia and Turkey have also started raising interest rates to contain soaring inflation triggered by supply chain bottlenecks as economies reopen. Higher interest rates cool economic growth.
“A worsening pandemic and tightening financial conditions would inflict a double blow to emerging markets and developing economies and severely set back their recoveries,” Gopinath warned.
Inflation & action
A significant portion of the “abnormally high inflation” readings is transitory, resulting from the pandemic’s hit to vital parts of the economy such as travel and hospitality, and from a comparison with last year’s abnormally low readings, Gopinath said.
The IMF forecasts inflation to remain elevated next year. In emerging markets and developing economies food price pressures and currency depreciation will continue to create yet another worrying disparity in economic recovery.
Major central banks must clearly communicate their outlook for monetary policy and ensure that inflation fears do not trigger rapid tightening of financial conditions, the IMF stressed.
The Fund’s proposal to end the pandemic, endorsed by the World Health Organization, the World Bank, and the World Trade Organization, sets a goal of vaccinating at least 40 percent of all people in every country by the end of 2021 and 60 percent by the middle of 2022.
The IMF urges at least 1 billion vaccine doses to be shared in 2021 by countries with more than enough of them and calls on manufacturers to prioritise deliveries to low and lower-middle-income countries.
The fund said its allocation of some $650bn worth of its reserve currency, known as Special Drawing Rights, should be completed quickly to help countries in need fund their spending needs. Greater action is also needed to ensure the G-20 successfully delivers on debt restructuring for countries where debt has ballooned and become unsustainable, said the IMF.
Gopinath further urged countries to focus more on reducing carbon emissions and slowing the rise in global temperatures to avoid yet another human and financial catastrophe. As it stands now, only 18 percent of recovery spending has been on low carbon activities.
“Concerted policy actions…can make the difference between a future where all economies experience durable recoveries or one where divergences intensify, the poor get poorer and social unrest and geopolitical tensions grow,” she said.
UPS CEO says U.S. deliveries slowed down last quarter as economy reopened – CNBC
United Parcel Service CEO Carol Tome on Tuesday defended her company’s long-term strategy after shares tumbled, despite beating estimates in its report from the second quarter.
UPS stock dropped nearly 7% after the company showed there was a slowdown in domestic deliveries in the three-month period, leading it to miss U.S. revenue forecasts.
Tome said on CNBC that it was no surprise to the shipping company that the average daily domestic volume in the U.S. was down slightly from a year ago.
“There’s been a permanent shift in how consumers are shopping and e-commerce sales are booming, but the rate of growth is not the same as it was last year when everyone was sheltering in place,” she told Jim Cramer in a “Mad Money” interview. “We realized that when the economy started to open and stores reopened, consumers would go back into their stores and we saw it happen.”
U.S. deliveries in the second quarter declined by 3% and ground packaged volume fell 4% from a year ago. Revenue per package, however, rose by 13% on U.S. deliveries and was even higher overall. UPS saw strength in foreign markets.
Tome, who began leading the $170 billion company in June 2020, said UPS predicted a slowdown in U.S. shipments after SurePost, its residential ground service, drove 53% of total U.S. volume last year.
While Tome expects the company’s operating margins to ease in the second half of 2021, she told Cramer that this is a seasonal trend for UPS. Operating margin is the percentage of revenue left over after considering costs of goods sold and other expenses.
By 2023, the company expects to reach $102 billion in revenues — up 20% from 2020 — and an operating margin of 12% in the U.S., she said.
“We’re projecting volume will increase in the back half of the year, not as much as what we saw in the first half because of the year over year comparisons, but volume’s going to grow,” Tome said.
“But this isn’t about a second-half performance, this is about where we’re taking the company long term.”
Shares of UPS closed Tuesday’s session at $195.19, up nearly 16% on the year.
Apple's iPhone hot streak is going to run into the global chip shortage – msnNOW
Vaccinated should wear masks indoors in US COVID hotspots: CDC – Al Jazeera English
Fed Considers Tapering Bond Purchases as Economy Grows – The New York Times
Silver investment demand jumped 12% in 2019
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