What will COVID everywhere do to the economy?

Nothing good. BofA on the American experience:

The Conference Board report yesterday revealed a sizable drop in consumer confidence to a six-month low of 113.8in August, down from 125.1 in July. The consensus was forecasting only a small decrease. The data echoed a similar slide in the University of Michigan sentiment index, which fell to a near-decade low of 70.3 in August from 81.2 in the prior month.

Both reports cited the spread of the Delta variant as the main reason for consumers’ more pessimistic view of the economy, although elevated prices were also a drag.

We see downside risks to consumer spending in August. The BAC aggregated card data show a weakening in leisure services spending (including travel, entertainment and restaurant spending) since late July. Recent data from AdobeDigital Insights also showed a drop in airline bookings for Labor Day weekend.

Covid hospitalizations and deaths are likely bigger drivers of consumer sentiment than cases. Since we expect hospitalizations to peak in late September, we could see further downside to confidence in the near term.

This is not to say that we should not open up as vaccine rates hit key levels. But I wouldn’t be expecting any kind of snap-back boom like last year. Mollycoddled Australians will take longer than elsewhere to adapt.

Houses and Holes
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