June Spending Up But Delta Variant Darkens Outlook

The spreading Delta variant is casting a dark shadow over the U.S. economic outlook despite June’s 1 percent increase in household spending, The Wall Street Journal reported on Friday (July 30).

Income is also up, adding to the extra disposable money people have in their wallets. After more than 18 months of being homebound and wearing masks, families are hitting malls and entertainment venues, restaurants and airports.

But all of that could be curtailed due to the fast-spreading and highly contagious Delta variant of COVID-19. Some U.S. states are starting to implement mask mandates. The Centers for Disease Control and Prevention (CDC) is advising that even people who are vaccinated should wear masks indoors. 

“Consumers have a lot of pent-up demand and a lot of pent-up wealth that they’re very willing to get rid of in the marketplace by consuming goods and services,” Lindsey Piegza, chief economist at Stifel Financial, told The Wall Street Journal. 

She added that in the short-term, spending should stay the course. The forecast for long-term growth, however, could go off course because of the increasing number of new Delta variant cases, per the report.

The Delta variant has tripped up the reopening of some offices and others are implementing restrictions. Despite that, myriad economists expect that people will adapt, as they did during the pandemic, and this new contagion won’t have a considerable impact on growth.

U.S. gross domestic product (GDP) in the second quarter grew at a 6.5 percent annualized rate, with consumer spending climbing sharply at an 11.8 percent annual rate. Spending on services contributed the most to the change in GDP, followed by purchases of goods.

GDP in the second half of 2021 is anticipated to lose momentum, according to economists. However, they forecast that consumer spending will continue to grow the economy. The labor market is continuing to get better, and the additional child tax credit should all add up to robust consumer demand for goods and services. 

Michelle Meyer, head of U.S. economics at BofA Global Research, told the WSJ that July’s data on debit and credit card spending was not noticeably down. Although that might not be the case months down the road, a consumer spending dip is probably “a speed bump in the recovery rather than a stop,” she said, per the news outlet.

Goldman Sachs said earlier this week that the second half of this year will see economic contraction, with a drop in consumer spending and an increase in the number of Delta variant cases. Goldman’s perception also indicated that growth will continue to lose momentum after 2021.