On July 4th, the US economy -peared ready to explode.
“We are seeing record job creation and record economic growth,” President Biden said at the time when he encouraged Americans to celebrate their newfound independence from the coronavirus pandemic.
On Labor Day, however, the economy looked more like a dud, its midsummer glory stifled by a wave of Delta variant infections and ongoing problems in the supply chain.
The economic growth in the third quarter, as the Ministry of Commerce announced on Thursday, is expected to be less than half of the spring quarter.
But there is room for hope: the health outlook is improving, and forecasters believe this could prepare the economy for stronger growth in the last three months of the year.
“We lost a step here, but I think we’re going to get a lot of steps back pretty quickly,” said Mark Zandi, chief economist at Moody’s Analytics. “This underscores how closely the economy is tied to the pandemic. It is still on the economic train.”
A quarter of two halves
The pandemic has had an unprecedented impact on the entire economy, and few periods have illustrated its ups and downs as dramatically as the slowdown in late summer and early fall.
At the beginning of July, the economic train chugged at a healthy pace as the country’s gross domestic product grew at an annual rate of 6.7% from -ril to June.
“It looked like the recovery could only get stronger,” recalls Ben Herzon, an economist at forecasting firm IHS Markit. “The number of coronavirus cases was low and falling. People were making plans to get back to work.”
Alex Wong / Getty Images
President Biden and First Lady Jill Biden pose for a selfie with fellow Biden family members as they watch fireworks display during a July 4th barbecue at the White House. Hopes for the economy on Independence Day were raised by the spread of the Delta variant and supply chain problems.
Restaurants and airlines hit by the pandemic in 2020 were hoping to make money as Americans dined out and booked overdue vacations.
Employers created more than a million jobs in July, including 57,000 in manufacturing.
“Everyone’s been looking at this backlog that’s coming in and chasing business,” says John Gessert, who runs a toy factory in Walled Lake, Michigan.
It didn’t last. Employment growth slowed by almost two thirds in August. The job growth in September was even lower.
“Delta h -pens”
It’s no secret why an emerging economy suddenly coll -sed.
“What h -pened was Delta h -pened,” Federal Reserve Chairman Jerome Powell told reporters last month.
As coronavirus-related infections, hospitalizations and deaths increased in late July and August, people were spending less on personal services and many plans to return to work were put on hold.
“Delta did a lot of damage,” says Zandi. “It has made consumers more cautious, so travel has decreased. People went to restaurants less often. It has disrupted global supply chains.”
Spencer Platt / Getty Images
A coronavirus pop-up test site stands on a street in Manhattan, New York City, on October 26th. Delta variant infections are declining, raising hopes for an economic recovery in the last three months of 2021.
In tourist-dependent Las Vegas, visitor traffic fell 9.2% between July and August and a further 2.1% in September.
“Without the Delta variant, there would definitely have been a lot more people here,” says Precious Briggs, an unemployed server waiting to be called back to the Palace Station Casino.
While some companies harmed customers, others struggled to find workforce. Millions of potential employees had either contracted COVID-19, stayed home for fear of getting it, or were busy caring for loved ones who were ill.
“The challenge for us was to find enough drivers,” says Angela Eicher from the Nitetrain Coach Company, which offers bus transport for tour musicians. “We had a couple of drivers who contracted COVID while they were out and about.
Gessert’s toy company, which typically employs around 300 people in Michigan and Mississippi, is limping along with 230.
“We had to limit the molding times because we don’t have enough people to assemble the parts,” says Gessert.
No onion rings and no cheese sticks
The shortage of labor has contributed to a shortage of materials – and has made it worse.
The plastic resin Gessert’s company uses to make toys has doubled in price, and even cardboard packaging has been difficult to come by at times.
“What used to take a week now takes two to three weeks,” says Gessert. “That’s the frustrating thing. We could have done a lot more business if plastic hadn’t gotten so expensive and we could have employed people.”
The Tackle Box 2 restaurant and boat ramp on the Sandusky River in Ohio had heavy traffic in the summer. But it was a challenge to feed the customers.
“Onion rings. Cheese sticks. There are things I just can’t get,” says Sereta Stephens, whose father founded the restaurant 30 years ago. “If I order it today, it might be here next week or in two weeks.”
Consumer spending held up reasonably well during the quarter, thanks in part to federal bailouts that bolstered the savings earlier in the year. But consumers might have bought more had it not been for delivery delays and bottlenecks.
“It’s great to say that people have money to spend, but unless they have things to spend it on, it doesn’t really affect the economy,” said Nela Richardson, chief economist at ADP.
Mario Tama / Getty Images
A truck drives past freight containers stacked in the port of Los Angeles, the busiest container port in the country, on Oct.15. The problems in the supply chain are expected to persist well into next year.
But there is hope for the way ahead
While third quarter growth is dis -pointing, forecasters expect GDP to pick up in the final months of the year.
Coronavirus infections have decreased by almost 60% since the beginning of September. And as health prospects improve, dining out, air travel, and personal entertainment have all recovered.
Winter is usually a slow season for touring musicians, but Nitetrain’s bus schedule is firmly booked for November.
“People are eager to go out and see live music,” says Eicher. “I also think that the musicians are ready to play live music in front of an audience again.”
Herzon assumes that the economy will grow at an annual rate of almost 5% in the last three months of the year – slower than in spring, but much faster than during the late summer crisis.
“Consumers are spending and that’s a good sign,” says Herzon. “As long as companies learn to deal with their supply problems, growth can pick up.”
The strength of the recovery will also depend on how quickly potential workers – some of whom have been sidelined by the Delta Wave – decide it is safe to return to work.
“I think the biggest question out there is where are all these missing workers?” asks Richardson. “How long will you be missing and what will move you back into the job market?”
She expects more job growth this winter than in August or September, but doubts employers will create a million jobs a month, as they did in July.
“We’ll likely see progress, but it will continue to be jerky progress. And it will depend on containing the virus, ”says Richardson. “People’s confidence in the economy is currently tied to their state of health.”
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