There are also important questions about the impending impact the expiration of extended unemployment benefits for millions of Americans on Monday, the recent end of a national moratorium on evictions, as well as the threat of congressional deadlocks this fall on federal government funding and the limit of the national debt. Add to these the likely economic toll from Louisiana to New England from Hurricane Ida and the possibility of a dramatic market shift in the direction of the Federal Reserve this winter.
“We are in the midst of a herd of black swans,” said Diane Swonk, chief economist at accounting and consulting firm Grant Thornton, using the term financial for unforeseen and potentially serious events. She rated the level of economic uncertainty at 8 on a scale of 10.
The good news is that the economy is resisting this latest wave of viruses so far much better than previous ones. Although this month’s jobs report fell short of expectations, overall average job growth over the past few months has been strong. But the rise of the Delta variant is another reminder that the road to recovery from an unprecedented pandemic remains strewn with potholes.
“The recovery is still in progress, but the bloom has faded,” Swonk said. “Delta has suppressed the flowering of the arrow. “
All of this represents another significant challenge for President Biden after a tumultuous August that marked the chaotic and deadly withdrawal of US troops from Afghanistan.
He admitted on Friday that he had hoped for much more than the disappointing 235,000 jobs created in August, less than a quarter of July’s growth and half a million jobs below expectations. Biden blamed the Delta variant and promised to come up with a plan in the coming week to fight it. But he highlighted the bigger picture of a recovering economy that has created an average of 750,000 jobs each in the past three months.
“Despite the impact of the Delta variant… what we are seeing is a lasting and strong economic recovery,” Biden said.
Many economists agree.
“I think the big story is that we have this massive wave of COVID … and yet we don’t have the kind of economic carnage that we had in 2020,” said Julia Pollak, chief labor economist at the site. ZipRecruiter User Manual. The number of nationally active online job postings across thousands of sites rose 13% in August from July, showing companies remain bullish, she said.
And even as he warned that labor market conditions were “turbulent,” Federal Reserve Chairman Jerome Powell said in an Aug. 27 speech that the Delta variant was only a “risk to risk.” short term “and that the central bank remained on track to start pulling out. part of its economic support – without increasing its key rate – by the end of the year whether the recovery is progressing as expected.
But there are signs Americans are getting nervous and could bring the economy down with their moods.
Retail sales fell significantly last month as the Delta variant took hold. And a leading indicator of consumer confidence from the University of Michigan fell in August to its lowest point since 2011 amid rising COVID cases as well as concerns about rising prices, declining wage gains and pessimism about future job growth.
These are among the factors that have led economists to downgrade their forecast for the third quarter from a consensus of an annual growth rate of over 7 percent to around 6.5 percent. The economy grew at a rate of 6.6% during the April to June quarter, a major improvement over before the pandemic, but below what is needed for a rapid recovery from the deep recession.
Growth has been fueled by $ 1,400 stimulus checks to most Americans this year, part of the nearly $ 6 trillion the federal government has spent to support the pandemic-stricken economy from the start. of 2020 – unprecedented help. Much of this aid ends as the virus reappears and it is unclear to what extent the economy will develop on its own, as the country remains at around 5.3 million jobs below its jobs. before the pandemic.
“The risks are downright on the downside given the many challenges facing the economy,” said Joe Song, senior US economist at Bank of America Global Research, which lowered its third-quarter forecast to 4.5%. “Normally these risks come separately… but right now all of these factors come to a head and it makes it much more complicated to look through the crystal ball.”
It remains “cautiously optimistic” that the economy will resist the Delta variant and predicts a return to growth of 6% in the fourth quarter of the year. But Song noted, “September is going to be a very complicated month, especially in Congress.”
Lawmakers have yet to pass funding bills to avoid a government shutdown when the fiscal year ends on September 30 and increase the country’s legal debt limit of around $ 28.5 trillion, which was reached on 1st of August. The Treasury Department used temporary accounting maneuvers to allow continued borrowing to avoid a default on government bonds, but those options will be exhausted this fall.
Democrats plan to tie an increase in the debt ceiling to a government funding bill. But they will need at least 10 Republican senators to support the movement and Although they joined Democrats in approving debt limit increases during the Trump administration, all but four signed a letter last month promising they would not do so under Biden. Congressional Democrats could raise the limit themselves through the budget reconciliation process, but party leaders have said they want the hike to be bipartisan as in the past.
A debt limit showdown in 2011, resolved at the last minute, led Standard & Poor’s to issue the country’s first ever lower AAA credit rating. The uncertainty also forced the Treasury Department to pay an additional $ 1.3 billion in borrowing costs that year.
Song warned that a debt limit crisis would disrupt financial markets and further hurt consumer confidence.
“Negative headlines can make you a little more wary about what large expenses you are considering,” he said.
A senior White House official who was not authorized to speak officially, said failing to raise the debt limit would amount to an own goal in football and said it was especially dangerous with so many others economic uncertainties.
One of those unknowns is Powell’s future as Fed chairman as his four-year term expires in February. He is a Republican raised to the post by Donald Trump. Although Powell received high marks for his handling of the economy, the Liberals are pressuring Biden to appoint someone who will be more aggressive on financial regulation and climate change.
Boston Representative Ayanna Pressley joined four other House Democrats on Tuesday in publicly urging Biden to replace Powell. Senator Elizabeth Warren also criticized Powell on financial regulation.
Swonk said a change in direction from the Fed could shake up financial markets and the economy at a time when stability is needed.
“You don’t want to mess with something that works,” she said. “Right now, anything that eliminates uncertainty is better than adding uncertainty.”