The US economy might've reached peak recovery
- Recent economic data suggests the US recovery is slowing from the rapid pace of early summer.
- Americans are spending less, unemployment filings are flatlining, and confidence in the recovery plummeted in August.
- Americans are bracing for a slower rebound as the Delta variant sends case counts skyrocketing.
The US economy is still getting better. But the pace of recovery might be slowing down.
After a summer of reopening, vaccination, and lower cases, the coronavirus is bouncing back. The Delta variant's spread lifted daily case counts to their highest levels since January, and authorities have since reinstated some restrictions to counter contagion.
The booming recovery of the summer - fueled by fresh stimulus and a surge of consumer spending - is fading. Second-quarter economic growth has already proved disappointing, coming in at an annualized rate of 6.5% compared to the median estimate of 8.5%. And as August data comes in, the virus resurgence is likely to slow activity.
Early indicators suggest the recovery has already peaked. Whether growth rebounds depends on Americans accepting jobs and continuing to spend.
Spending fueled by reopenings is starting to slow down
Chase credit- and debit-card spending data tracked by JPMorgan shows a sharp decline in spending on categories most affected by reopening since mid-July. Spending at restaurants sits slightly below the highs seen last month. Activity at hotels and other lodging businesses, however, is down notably from its summer peak. And spending on airlines has plunged before even returning to its pre-pandemic levels.
Unemployment filings are flatlining
While just a fraction of the highs seen earlier in the crisis, weekly filings for unemployment benefits have hovered around 370,000 after sliding through most of the year. The latest reading came in at 375,000, matching forecasts but still above the pandemic-era low.
To be sure, continuing claims, which track Americans receiving benefits, staged a more promising recovery through the end of July. Yet both weekly and continuing claims are roughly double their pre-pandemic levels, and recent reports hint at a plodding recovery as Delta cases climb.
Americans are bracing for the worst
Consumer sentiment plummeted to 70.2 in early August from 81.2, according to the University of Michigan's Surveys of Consumers. That's the lowest reading since 2011 and the largest one-month drop since confidence evaporated at the start of the pandemic. The only steeper drops came when virus lockdowns began in April 2020 and at the worst period of the Great Recession in December 2008.
The souring of economic hopes was broad-based. Americans cited increased concerns around inflation, unemployment, and their personal finances. Losses were spread across age, income, educational, and geographical lines, according to the university. And measures of current and future conditions also tanked, suggesting people were prepared for the Delta variant to pose a lingering threat.
The sentiment metric can stage a quick recovery and even shift toward optimism if the country can get a handle on the virus's spread, Richard Curtin, chief economist at the Surveys of Consumers, said in the report. Still, with spending on the decline, Americans still leaning on unemployment, and recovery hopes worsening, it seems the country is getting ready for a steeper climb ahead.