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Nicole Jones had September circled on her calendar for months, marking when life would return to normal. Her four kids would be back in school, so she could go back to work.
But it’s not turning out that way. Her oldest son had to return home, evacuating from Xavier University of Louisiana ahead of Hurricane Ida, and it’s not clear when schools will reopen. Her high-schooler and 8-year-old just started classes, but there is drama over mask-wearing. Plus, there’s no after-school child care available because there aren’t enough staffers and bus drivers.
“I’m literally in limbo. I’ve been job searching, but it’s hard right now with so many unknowns,” said Jones, who lives in Cincinnati. “I don’t want to accept a job offer and then have to stop.”
Jones is far from alone in having to readjust her plans for the fall. The delta variant of the coronavirus is preventing a return to normal and pumping the brakes on the economic recovery. Major corporations such as Apple, Facebook and Ford have pushed back their return-to-office dates from September to January. Schools are reinstating mask mandates and, in some cases, dealing with new covid-19 outbreaks, sending students home to quarantine. Restaurants and retailers are scaling back hours, as workers remain hesitant to return to lower-paying service jobs in which they are also more exposed to the virus. Meanwhile, brands including Nike and Gap are warning that factories in Vietnam and elsewhere aren’t operating at full capacity and that some items may not be available as the coronavirus surges around the world.
Only a few months ago, it seemed that September could be a turning point for a return to normal in the United States. Instead, it has become a renewed period of anxiety. For many Americans, this is fast becoming the “I don’t know” economy. Business leaders don’t know when supply chains and shipping bottlenecks will subside. Parents don’t know if school or child care will be disrupted again. And many workers don’t know if they will go back to the office in the coming weeks.
Consumer sentiment tumbled in August, falling 13.4% from July; that is among the biggest one-month declines ever observed, according to the University of Michigan Surveys of Consumers. The delta variant, high inflation and slower wage growth were major factors in the decline, but the survey also found an especially large impact from “dashed hopes that the pandemic would soon end and lives could get back to normal.”
“The long-awaited September return to normal is not happening as expected,” said Constance Hunter, chief economist at KPMG. Hunter called the delta variant “worrisome,” especially how it is starting to cause Americans to trim spending.
“If you don’t see service spending really pick up or it grows only slightly, then it’s likely we will get much more muted growth this year,” she said.
Stress and uncertainty are starting to hurt the economic recovery. The number of passengers going through airport security has retreated, along with dining and hotel reservations, as people grow more cautious. All of this is happening as much of the federal government support for the economy is fading. The Supreme Court struck down the Biden administration’s attempt to extend the eviction moratorium, putting 750,000 families at risk of eviction, according to Goldman Sachs. And much of the unemployment aid is set to end next week, cutting off financial support to millions of people – and the broader economy.
These financial lifelines are ending as prices of many basics, like food, gas and rent are rising, further straining the budgets of low-income and middle-class Americans. Inflation is at a 13-year high, and gas prices are set to be the highest this Labor Day weekend since 2014, according to GasBuddy.
Although policymakers blame most of the price spikes on temporary factors like the supply chain glitches holding back car manufacturing or the hurricane’s impact on prices at the gas pump, there are also longer-lasting signs. For example, rents are rising, up 14% across the country so far this year, according to Apartment List. That’s the fastest rent growth on record in their data.
“There are two things I’m a little nervous about,” said Ben Bernanke, who led the Federal Reserve during the Great Recession and recovery. “One is supply chain disruptions going on for a really long time, which could create a lot of price pressures. The other one is rents.”
Numerous forecasters have lowered their predictions for growth in the third quarter, the period that runs from July through September. A month ago, IHS Markit was predicting 7.1% annualized growth for the third quarter. The latest prediction is 4.7%, largely because of how the delta variant is prolonging supply chain troubles and starting to suppress some spending.
“Our interpretation of these developments is that sharp increases in COVID-19 infections will temporarily dent but not derail the economic recovery in the United States,” the IHS Markit economics team wrote in a note to clients.
Policymakers remain optimistic. The White House released an updated forecast Friday predicting 7.1% growth for the year, up from 5.2% in May. Meanwhile, Federal Reserve Chair Jerome Powell said Friday he believed the U.S. economy was on a path to “high levels of employment and participation, broadly shared wage gains and inflation running close to our price stability goal.”
Where the U.S. economy goes from here largely hinges on two things: consumer spending and hiring. Spending has been strong for months on goods like furniture and cars, but now economists are looking for a rebound in restaurants, entertainment and travel. How much the delta variant hurt the service sector in August remains to be seen, but a modest pullback is apparent, looking at real-time spending and mobile phone data.
On the hiring front, the economy regained nearly a million jobs a month in June and July, a spate of strong hiring, especially in the hospitality sector. Economists forecast a slightly more muted gain of around 700,000 jobs in August, but that would still be a very solid number. If the job gains are weaker, the concern is whether that’s temporary or something deeper.
“If businesses keep hiring, the recovery will remain intact and get back on track quickly,” said Mark Zandi, chief economist at Moody’s Analytics.
Still, the reality is that the “I don’t know” economy is hurting some Americans more than others. Parents, especially mothers like Jones in Ohio, are finding it harder to get back to work until the schools and day cares have fully reopened. There is also hesitancy to take jobs at restaurants or in other high-contact settings.
New research by M. Melinda Pitts, director of the Center for Human Capital Studies at the Federal Reserve Bank of Atlanta, found that women with children under the age of 13 accounted for 19% of the pre-pandemic workforce but made up a disproportionate 30% of the job losses. This was different from in past recessions. The factors holding mothers back remain.
Pitts concludes: “The continued risk of new variants, the relatively low vaccination rates in many parts of the country and the lack of a vaccine for young children – along with issues surrounding access to day care – combine to suggest that women with children under age 6 are likely to face significant head winds when reentering the workforce. It seems unlikely that these issues will resolve themselves in the immediate future.”
Labor Department data shows that Black and Hispanic women are still struggling the most to return to jobs. If that doesn’t change soon, it could make inequality worse.
Delays in workers returning to the office mean fewer people in many downtown areas and less need to staff up restaurants, hair salons and other services that cater to white-collar workers near their offices. Certain industries such as live entertainment are still struggling.
In the San Francisco Bay area, Serena Zanello, 43, had a thriving interior design business working with retail chains, hotels, restaurants and offices, but all that was decimated overnight when the pandemic hit. Even though the stock market is back at record highs and many corporations are reporting record profits, her business has yet to feel the rebound.
“I think the economy isn’t there yet to stop unemployment. I am still waiting for improvement and for the big projects to come back,” said Zanello, who is on unemployment and trying to do more residential projects.
About 75% of the jobs lost during the pandemic have returned, but economists warn that the last ones are often the hardest to regain as people have been out of work for a year or more and have to find new employers or, in the case of Zanello, new contracts for freelance work.
On Wall Street, there is little worry about the ongoing pain of the pandemic. The S&P 500 closed at yet another record high on Monday – its 12th in August alone. Despite the surge in coronavirus cases and a spike in deaths because of the delta variant, the S&P 500 has hit a record high every week for the past 13 weeks, according to Howard Silverblatt of S&P Dow Jones Indices.
Investors remain generally confident that hiring will continue and that coronavirus cases will fall, much as they did in Britain.
“Each successive wave of the pandemic has had less of an effect on the economic recovery,” said PNC senior economist William Adams.
But one of the hardest factors to gauge in the economy has always been consumer sentiment. The precipitous drop in sentiment in August took many analysts by surprise. Digging a little deeper into the data reveals an especially sharp fall among Americans who identify as Republican or independent.
There has long been a gap between how Republicans and Democrats rate the economy. When someone’s preferred party controls the White House, the person tends to be more optimistic. But the latest data indicates a particularly large plunge.
“The latest figures show a level of pessimism among Republicans we haven’t seen before,” said Peter Atwater, an adjunct professor of economics at William & Mary. “Their expectations of the economy now border on hopelessness. And even independents are less optimistic than they were a year ago, during the worst of the pandemic.”
It’s unclear how long this “hopelessness” will stick around and what it might mean for consumer spending and hiring. What is clear is that hope for a return to normal is being pushed back at least a few more months.
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