Data in August shows that U.S. consumer confidence is at its lowest since 2011 amidst the rise in Covid cases nationally. How might this surge in cases impact the current economic recovery? We think there will be some short-term impact, but that this will not derail the economic recovery.
Through July and August, the U.S. saw yet another wave of new Covid cases, this time driven by the highly contagious Delta variant. U.S. GDP is driven primarily by the U.S. consumer and there have been several signs that consumers are less willing to spend amidst the rise in cases.
The University of Michigan’s consumer sentiment index came in at 70.2% in August, down 13% from July and the lowest reading since 2011. We have also seen credit card data pointing to a decline in activities such as bars, restaurants, lodging, parks, theaters and flying. The rise in cases will likely have some impact, at least on Q3 earnings and the full year GDP.
However, that certainly doesn’t mean that the economic recovery is over. U.S. Consumers have accumulated an estimated $2.5 trillion in excess savings over the past 1.5 years. Data from earlier this year shows that consumers are eager to spend it and make up for lost time once they feel it is safe to do so. So, while the health and economic impacts of the Delta variant are very unfortunate, it likely won’t put an end to the economic recovery, but rather just delay it. This may also give companies a little extra time to build up some of their depleted inventories, hopefully containing further inflation pressures.
To learn more about where you may want to position your portfolio in today’s market, contact us at AskFreedom@freedomfamilyoffice.com