The US economy is further from being back to normal again. Thanks, Delta.
The more infectious variant of Covid-19 is making people anxious about being around others. That’s bad news for the economy going into the winter months, and might mean it’s time to get used to a slower recovery.
The Back-to-Normal Index created by CNN Business and Moody’s Analytics, which tracks how the US economy is doing compared with pre-pandemic times, dropped to its lowest level since early June. After hovering in the low-90% area for months, America’s economy dropped back to 89% of its pre-Covid strength as of September 17. South Dakota is the now the only state in the union that’s stronger than it was before the pandemic.
Louisiana is faring worst, at just 76% of pre-pandemic strength, followed by New York at 78%. But in Louisiana’s case the state is still grappling with fallout from hurricane Ida.
What’s happened elsewhere is rather straightforward, according to Moody’s Analytics associate economist Matt Colyar: Delta is keeping people away from one another.
Some of the components in the Back-to-Normal Index, such as passenger throughput reported by the TSA or restaurant reservations from Open Table, show this trend: People are canceling plans to avoid exposure to the virus.
“I’m reluctant to draw too many conclusions from one data point … but i think it is part of a trend,” Colyar told CNN Business.
Consumer behavior has changed dramatically over the course of the pandemic. The reopening in the spring, for example, sent travel bookings through the roof, and stimulus checks led many people to spend more. But the situation has changed for the worse.
“In the spring everybody went out to book a vacation and to go out to eat but there’s no driver like that now,” said Colyar.
For example, in late August, Hawaii Governor David Ige asked tourists to stay away due to Delta and the strain it put on the healthcare system.
“Moving forward [the recovery] will be a matter of a much slower climb,” Colyar added.
That won’t go unnoticed by American consumers or Washington’s institutions. The Federal Reserve, which is due for its next policy update Wednesday, is keeping a close eye on how the recovery is doing.
Over the summer, rapid improvements and spiking inflation caused concerns that the economy might be overheating and the Fed planned on slowing the pace of its emergency stimulus program. Now the wobbles in the economy may force the Fed to keep its foot on the gas pedal a bit longer.
But there are some caveats to these conclusions.
One data point isn’t a trend, and volatile information can distort what’s really happening. Restaurant reservation data, for example, is noisy even though the nationwide trend is a more reliable indicator, Colyar said. As for travel, September is a low activity month as schools are restarting.
Meanwhile, other parts of the Back-to-Normal Index keep improving slowly and steadily. This includes weekly claims for unemployment benefits, as well as monthly job creation numbers. Even though Delta has put a damper on the latter in August, the labor market recovery is still chugging along.
Only time will tell if the impact from Delta is here to stay for the winter.