US economy recovers virus losses, but faces new test

NYT The U.S. economy climbed out of its pandemic-induced hole in the spring as vaccinations and federal aid fueled a surge in consumer spending at restaura...

NYTThe U.S. economy climbed out of its pandemic-induced hole in the spring as vaccinations and federal aid fueled a surge in consumer spending at restaurants, resorts and retail stores.The revival brought gross domestic product back to its prepandemic level in the second quarter, adjusted for inflation — a remarkable achievement, exactly a year after the economy’s worst quarterly contraction on record. After the last recession ended in 2009, GDP took two years to rebound fully. But the rise of the delta variant of the coronavirus could threaten those gains just as the federal aid programs that helped bolster the recovery are coming to an end.Gross domestic product, the broadest measure of economic output, grew 1.6% in the second quarter of the year, the Commerce Department said Thursday, up from 1.5% in the first three months of the year. On an annualized basis, second-quarter growth was 6.5%.Robust investment in the quarter signaled that businesses were betting on continued growth. But the recovery is far from complete. Output is significantly below where it would be had growth continued on its pre-pandemic path, and other economic measures remain deeply depressed, particularly for certain groups. The United States has nearly 7 million fewer jobs than before the pandemic. The unemployment rate for Black workers in June was 9.2%.“The good news is, this is all occurring much more rapidly than after the financial crisis,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “The bad news is the pain was much worse.” Indeed, the economy’s second-quarter growth might have been stronger had it not been for supply-chain disruptions and labor challenges that made it difficult for many businesses to keep their shelves stocked and their stores staffed. Inventories fell and imports rose as companies turned to overseas suppliers and their own warehouses to meet demand where domestic producers could not. And despite a red-hot housing market, residential construction fell 2.5% in the second quarter as builders struggled to get materials and workers.Those issues, combined with a rush of consumer demand, contributed to faster inflation in the second quarter. Consumer prices rose 1.6% from the first quarter of the year to the second. Without adjusting for inflation, economic output rose 3.1%.Now a new threat is emerging in the highly contagious delta variant of the coronavirus, which has caused cases to soar in much of the country. The Centers for Disease Control and Prevention recommended this week that even vaccinated people should wear masks indoors in some areas, and some mayors and governors have reimposed mask mandates.Few economists expect a return to widespread business shutdowns or stay-at-home orders. But if the resurgent virus leads to renewed caution among consumers — a reluctance to dine at restaurants, hesitation about booking a late-summer getaway — that could weaken the recovery at a crucial moment.“The reason that is concerning is that this burst of activity around reopening has been driving the economy the past couple months,” said Michelle Meyer, head of U.S. economics at Bank of America. “Even a modest change in behavior could show up more meaningfully this time around.” There is little evidence so far that either the delta variant or inflation are making a dent in consumer demand overall. Consumer spending rose 2.8% in the second quarter, and more recent data from private-sector sources has yet to show a significant slowdown.Spending on services was particularly robust in the second quarter as widespread vaccinations and falling virus cases led Americans to return to restaurants, nail salons and other in-person activities. But goods spending remained strong as well, reflecting the healthy financial position of many households after successive rounds of government aid, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.Personal income after taxes fell from the first quarter, when stimulus payments provided a temporary lift, but is still 6.4% above its pre-pandemic level after adjusting for inflation. And Americans are collectively sitting on trillions more in savings than they had before the pandemic.“The story of the last two decades was that every time you got a price increase somewhere, it caused immediate demand destruction because household incomes and balance sheets were so constrained,” Markowska said.