Pablo Pardo (Washington) | In September, the slowdown has, unexpectedly, arrived in the US. The main culprit is the Delta variant of the coronavirus, which is once again claiming 1,500 lives daily and threatens to cause a ‘W’ revival.
Until just a month ago, the biggest question regarding the US economy was whether its growth would beat China’s for two years in a row. The last time US GDP growth exceeded China’s was in 1984, and only for one year. But now, thanks to the post-Covid recovery, that record of three and a half decades was about to be broken. What’s more, early summer indicators had led to believe that the statistical ‘victory’ would be repeated in 2021. As Biden said: “America is back”.
But Biden’s phrase was in foreign policy. And after the debacle in Afghanistan, from which the US withdrew without consulting any of its allies, it is not so clear what the world’s leading power is back to. The same applies to the economy. Firstly, because the expected acceleration this year and next was only a consequence of the rebound effect after the slump caused by the first months of the coronavirus, as well as the massive monetary and fiscal injection with which that crisis was averted. After this exceptionally good period, US growth would return to its trend rate of 2.2%-2.3%.
But the second element of pessimism is more serious, and boils down to a Greek letter: delta. The slowdown came in September. It has come unexpectedly. Labour Day – which in the US is celebrated in September, so as not to have to remember that the day was chosen to commemorate an extremely violent union crisis that claimed the lives of eleven workers and seven policemen in 1886 – was supposed to be the moment when the economic recovery would accelerate. Schools and offices would reopen. And this would mean an injection of economic activity throughout the country since small businesses, the hotel and catering trade and, in general, SMEs are among the sectors hardest hit by the pandemic.
None of this is happening. It is true that schools have opened, but the rest of the country is still in the doldrums. In the Washington metropolitan area, for example, the hospitality industry got off to a spectacular start in May and June, once the restrictions triggered by Covid-19 were, for the most part, lifted. But since then it has been in fits and starts. In a city where events are one of the main sources of income, there are still no congresses, round tables, or face-to-face debates. Festivals are announced and cancelled. It is not only that the expected take-off is not coming. It is also that uncertainty is growing by the day.
The rock bands which have launched tours are seeing half-empty stadiums and halls. This is because part of the audience – especially the older ones, who are also the ones who pay up to 1,000 dollars to see former Pink Floyd Roger Waters sing hymns against capitalism – are afraid.
The reason for this slowdown is a Greek letter: Delta. The emergence of the new variant of the virus threatens very seriously to kill off expectations of a ‘V’ recovery. The option could be a ‘W’ revival, i.e. with a ‘valley’ in the revival, short of a full-blown recession. Still, it is serious enough, because it alters the country’s economic outlook. The US labour market is in a schizophrenic phase, with a lack of workers and, at the same time, several million unemployed who cannot find work. How will the slowdown affect it? For the time being, provisional data for the month of August reveal a paltry 235,000 jobs created in August, compared to around one million in June and July.
The issue is also complex in the area of monetary policy. Fears of overheating and a rebound in inflation had led the Federal Reserve to bring forward to the fourth quarter of 2021 the reduction in the purchase of public and mortgage debt it launched to reactivate the economy at the start of Covid-19. What should the issuing institution do if GDP growth moderates drastically? For the moment, the Fed is keeping its plans unchanged. The question is how far it will stick to them. That is to say, whether it will reduce its bond purchases by 5 billion dollars a month or whether the cut will be 20 billion. Added to this is the ability to play with the calendar: it is not the same to start normalising monetary policy on 1 October as it is on 31 December.
These are all factors that affect economic activity, the market and the public. For one thing, the expected stock market rotation from technology stocks to growth stocks has come to a complete halt. The possibility that Covid-19 will generate several million long-term unemployed, in a country where there are hardly any employment policies – both active and passive – is another potential consequence of the Delta variant.
Companies are postponing the return to work. First it was Apple. After that, it was all of Silicon Valley and the vast majority of the country’s companies. Even Wall Street. The World Bank gave its employees barely two weeks’ notice that the return to work was postponed to January. And the UN General Assembly is being held this year without an audience.
The problem is compounded by the politicisation of the fight against the pandemic. Since May, the percentage of vaccinated people in the US has been growing at a snail’s pace. The Republican Party has adopted as its political strategy the rejection of active measures in the fight against Covid-19. The governor of Florida, Ron DeSantis, a serious candidate for the presidency in 2024, has banned schools in the state from making it mandatory to wear masks. So has Texas Governor Greg Abbott.
In Republican states such as Texas, Florida, Arkansas, and Oklahoma, hospital ICUs are once again overrun. And people with ailments such as cancer are seeing their treatments delayed by a massive influx of unvaccinated Covid-19 patients. Twenty percent of Republican voters say they won’t get the vaccine even if it means endangering the lives of their family members. In fact, that’s one of the few points on which you can be more Trumpist than Trump: when the former president – who plans a second White House bid in 2024 – defended vaccines at a rally in Alabama on 22 August, he was booed. All this means that the US is clocking up an average of 1,500 Covid deaths a day, a figure not seen since March. On Labour Day, the number of positives was four times that on the same holiday last year.