- Despite the pickup in COVID-19 cases, tied to the delta variant, the pace of U.S. economic activity remains high. Mobility rates and reopening remained robust across most parts of the U.S. as people continued to visit restaurants and take trips.
- The pace of vaccinations has slowed considerably, falling to just over 0.5 million as of July 22 from a 3.4 million high in April. Household concerns earlier turned to the impact of higher prices, with the July University of Michigan five- to 10-year inflation measure near its 10-year high seen in May. Weekly consumer confidence data now suggests that people are also more worried about another wave of COVID-19.
- Demand for housing and housing-related items has eased--in particular, both residential investment and durable goods consumption have slowed as the consumer basket shifts to services.
- U.S. GDP reached its precrisis peak in the second quarter, and we expect that it will climb to its precrisis growth path in the third quarter this year. Our forecasts of real GDP growth for 2021 and 2022 are 6.7% and 3.7%, respectively.
|Summary Of Indicators|
|Indicator||How the data looks|
|Virus and mobility|
|COVID-19 cases and vaccinations||The U.S. vaccination drive has stalled, with nearly 48% of the population now fully vaccinated and 55% with at least single dose. Vaccination rates vary significantly by state. A slight uptick in cases and hospitalizations was visible over the past few weeks, with 80% of the analyzed sequences reported as the delta variant. Similar, countries like the U.K., India, and Israel have shown an increased number of delta variant cases.|
|Google Mobility||Mobility has improved significantly in the last couple of months as all states have reopened completely, but it remains 4% (seven-day moving average) below pre-pandemic levels.|
|Open Table||Overall seated dinners at restaurants continued to improve as states removed restrictions on dining, despite the pickup in infection rates. The U.S. remains only 5% below its pre-pandemic level. States such as Florida and Texas recorded an increase by 20% and 17%, respectively, whereas New York remains 32% below its precrisis levels.|
|Box Office||With movie theaters starting to open, the Box Office Mojo data shows that there is a long way to reach its pre-pandemic level. It's still 66% below the pre-pandemic level, but up by 9% over the month.|
|Air traffic||Air traffic continues its upward trajectory since March and currently stands 13.4% below its 2019 average.|
|Hotel occupancy||Hotel occupancy has remained above the 2019 average since June 12, as the services industry took advantage of pent-up demand. Currently, the occupancy rate is 7% above the pre-pandemic levels.|
|Current and future activity|
|Weekly Economic Index||The increase in WEI over the week before came from gains in retail sales, which offset declines in consumer confidence and steel production. Since the index measures gains over a 52-week period, the recent large increases since March also reflect pandemic-driven deterioration in economic conditions last year.|
|Home mortgage applications||Mortgage purchase applications dropped by 22% from their peak in early January due to high house prices driven by tight supply. Applications to refinance loans continued their downward trajectory despite the low 30-year mortgage rate.|
|Business applications||Business applications fell 21% in comparison to the last week, partly on holiday distortion as well as concerns over the recent increase in delta variant cases. Applications have trended down since their April high but remain 11% above their 2019 average.|
|Taiwan semiconductor backlog of orders||Taiwan's backlog of orders declined for the second straight month to a seven-month low, suggesting some easing in supply-related issues, particularly semiconductors. Notably, Taiwan is considered to be the largest manufacturer of semiconductors in the world.|
|Lumber futures||Lumber futures are trading 68% lower than the record high in early May but remain elevated as increased supply and waning demand alleviate lumber shortages. Despite the sharp decline in the futures market, prices quoted to homebuilders remain sticky as retailers still see high demand while having low inventory.|
|Industrial Metal Price Index||Industrial metal prices continued their rally on the back of strong global economic recovery, aided by expectations for increased U.S. government spending through investment in infrastructures.|
|Initial jobless claims/continuing claims||U.S. initial jobless claims popped to an 11-week high of 419,000 in the week ended July 17, which coincides with the Bureau of Labor Statistics (BLS) survey week. Continuing claims declined by 29,000 to 3.2 million in the week ended July 10. The insured unemployment rate held at 2.4%|
|Weekly Household Pulse Survey (people employed in the last week)||The survey reported around 145.3 million people were employed during the week ended July 5, compared with 146.8 million on June 21, a decrease of around 1.5 million during this period.|
|Indeed job postings||Indeed job postings continued to increase steadily moving into the summer season, led by reopening of the leisure and hospitality industry. BLS job openings edged up to a record 9.2 million in May. Total separations fell by 485,000 to 5.3 million.|
The U.S. economy has moderated to a still-high pace of activity, despite the pickup in COVID-19 infection rates tied to the delta variant. Mobility rates and reopening remained robust across most parts of the U.S. as people continued to visit restaurants and take trips (see table).
While the pace of vaccinations has slowed considerably, falling to just over 0.5 million as of July 22 from a 3.4 million high in April, real-time spending data indicates that households are tired of living under quarantine and ready to put the pandemic behind them. Recent data signals that people continue to spread their wings, with growing signs that the consumption basket is moving to services from durable goods items.
Another wave of COVID-19 amid higher prices adds to household concerns. Preliminary University of Michigan sentiment data for July indicated that people were less worried about another wave of COVID-19, and instead worries revolved around the impact higher prices may have on their pocketbooks, with the July five- to 10-year inflation measure near its 10-year high seen in May. Now available weekly confidence measures indicate further weakness in confidence since then, aggravated by the spread of the delta variant. While still in expansion territory, the Forbes Advisor-Ipsos U.S Consumer Confidence Weekly Tracker fell 4.2 points over the week to 57.2 as of July 20-21 and is 2.9 points below precrisis levels seen in March.
While base effects from the pandemic were still felt in June, they are expected to fade, as the impact from pandemic-depressed prices filters out of the system. Given the large seasonally adjusted month-over-month prints for the last three periods, the base effects are no longer the main reason for recent price gains.
Now, the hefty near-term boost in prices across many sectors is driven by supply and labor bottlenecks as business activity catches up to the reopening demand surge. Our real-time pricing data is mixed. Gasoline prices have increased to their highest level since October 2014, on economic strength and after OPEC and its oil-producing allies failed to reach an agreement on production activity for August and beyond. But while the metal prices index, 36% above its 2019 average, is holding near multiyear highs on a faster recovery and promising infrastructure news, the lumber price index is now 68% below its June peak on a pickup in production and softening housing demand. The lumber price index is still 23% above its precrisis levels.
As the engines of the U.S. economy gradually switched to service consumption in the second quarter of 2021, demand for housing and housing-related items has eased. Both residential investment and durable goods consumption, the main contributors to economic growth last year during quarantine, have slowed, indicated by our real-time and traditional economic trackers.
Despite the risk from the delta variant, the U.S. economy continues its strong reopening in June, with real GDP, in dollars, reaching its precrisis peak in the second quarter. According to our June baseline forecast, we expect that U.S. GDP will climb to its precrisis growth path in the third quarter this year, with stronger service consumption and cooler, but more sustainable, durable goods consumption and residential investment (see "Economic Outlook U.S. Q3 2021: Sun, Sun, Sun, Here It Comes," June 24, 2021).
Our forecasts of real GDP growth for 2021 and 2022 are now 6.7% and 3.7%, respectively, up from 6.5% and 3.1% in our December report, with our 2021 GDP forecast targeting the highest reading since 1984.
Delta Cases Climb In States With Lower Vaccination Rates
Despite 48% of the population fully vaccinated, the spread of the delta variant has caused a significant increase in new cases in the U.S. The number of daily new cases per million population (seven-day moving average), at 97.5 as of July 18, is 2.5x the level at the start of July, leading to an increase in the hospital admission rate to over 1.6x where it was two weeks ago (see chart 1).
Apart from the U.S., other developed countries with relatively high vaccination rates (around 50% or more of the population fully vaccinated), such as Israel, the U.K., and Germany, all witnessed the delta variant as nearly the only reason for the new waves of cases, with almost all of the new U.K. cases caused by the delta variant (see chart 2).
The surge in new cases is now centered in the least vaccinated states, which contributed to less than 10% of the U.S. GDP in 2019. In the past week (July 13-20), the surge of new cases is mainly in the mid-South, with Louisiana, Arkansas, and Missouri hit the hardest. Florida, South Dakota, and Nevada also saw larger-than-national-average numbers of new cases (see chart 3). These states all have relatively lower vaccination rates, with Florida having 55.6% of the population receiving at least one dose, the highest among the above states but still a notch below the national average of 55.8% (see chart 4).
Mobility Is Stable Despite The Delta Variant
Despite news that the delta variant is spreading across the states, average mobility has been stable in the past two weeks. The average U.S. Google mobility trend stayed around 4% below pre-pandemic levels in the past month ended July 17. While major states with higher vaccination rates keep experiencing recovery in outdoor activities, those with lower vaccination rates saw a slight decline in mobility amid the surge in the delta variant. Specifically, New York's and California's mobility trends stabilized around 11% and 14% below pre-pandemic levels, respectively, in the past month. In contrast, as of July 17, mobility in Florida and Arizona, two states with lower-than-national average vaccination rates, declined to 10% and 14% below pre-pandemic levels, respectively, since the end of May, when delta cases first started to pick up (see chart 5).
Similarly, on average, the increase in COVID-19 cases hasn't discouraged folks from having dinners at restaurants or arranging trips. The national average of seated dinners was around 5.6% below the 2019 level in the past two weeks, despite a big divergence across states. People in New York are still having 32% fewer seated dinners than they did in 2019, and those in Florida already having almost 20% more (see chart 6). Airports got busier in the past two weeks. Checkpoint numbers increased to 13% below pre-pandemic levels from 17% below two weeks ago (chart 7). Meanwhile, hotel occupancy rates stayed above the 2019 average in the past two weeks, after surpassing the pre-pandemic level in the middle of June (see chart 8). People are also more comfortable going to cinemas, but there is still a big gap between the current status and the pre-pandemic normal. Box office receipt numbers increased 34.7% from a month ago but remained 65.8% below pre-pandemic levels as of July 16-18 (see chart 9).
Housing Demand Was Almost Unchanged Even With Lower Financing Costs
Home demand was stable in the past two weeks. Mortgage applications for home purchases increased by only 2% in the first two weeks of July, though they're down 19.4% year to date, despite a drop in the already low mortgage rates (see chart 11). Although total mortgage applications jumped by a sharp 16% for the week ended July 9 on a seasonally adjusted basis, most of the increase was due to a sharp decline in Treasury yields because of worries about the delta variant and a subsequent 20% increase in refinancing activities, according to the Mortgage Bankers Assn.
Limited inventories and elevated housing prices keep discouraging homebuyers in July. Existing home sales were up 1.4% in June though down by almost 12% year to date. New home sales were down by 5.9% in May and are down 18.5% year to date.
Amid cooling home demand, lumber prices declined further in the past two weeks to $542/1,000 board ft as of July 18, less than one-third the level in early May (see chart 12). Meanwhile, homebuilders' confidence, although still high, fell slightly, to 80 in July, from an average of 82 in the second quarter, according to the NAHB Housing Market Index. The elevated homebuilder confidence reminds us that although homebuilding activities cooled, they are still above precrisis levels. Indeed, according to the latest release from the U.S. Census Bureau, housing starts declined by 1.96% in the second quarter of 2021 from last quarter, but remained 5.6% higher than the level in fourth-quarter 2019.
Higher Input Prices And Slow Deliveries Remain
Widespread production bottlenecks are lifting all the broad price readings in 2021, such as the Producers Price Index and the trade price indices, which have fed into consumer prices in varying degrees. Auto-related supply bottlenecks emerged as one of the biggest contributors to the U.S. consumer and producer price jump lately, contributing 20% to headline CPI inflation in second-quarter 2021 (see "U.S. Biweekly Economic Roundup: Auto Sector Problems Leave Imprints Throughout Major Economic Data," July 16).
Such issues persisted in the first two weeks of July, with carmakers facing high input prices and slow deliveries. One of the global metal price indicators, the CMCI Industrial Metal Price index, stayed around $1,460 per point in the past two weeks, well above the 2019 average of $1,085 per point, putting pressure on U.S. carmakers amid persistent demand from consumers (see chart 13).
The backlog of orders component in Taiwan's manufacturing PMI lost almost 10 points in June, what suggests that shortages in semiconductors are probably easing. That said, the backlog of orders for the world's biggest chipmaker remains well above 50 points, suggesting that chip-related supply bottlenecks would continue to delay production and keep prices up in the coming months (see chart 14).
Continuing Claims Drop As Pandemic Relief Programs End
At least 10 states have exited federal unemployment benefits programs. After Texas ended its participation in the Federal Pandemic Unemployment Compensation Program on June 26, the number of applications through this program contracted sharply by 12.2% from June 26 to July 3 (see chart 15).
Meanwhile, in the week ended July 17, initial claims jumped by 13.9% from the previous week, to 419,000, well below levels at the height of the pandemic though almost twice the average in 2019 (see chart 16). It is too soon to determine whether the delta variant is having an impact on business layoffs. We will be watching initial jobless claims closely nationwide and at the state level to gauge.
Based on job openings data, there are few signs of deterioration in the labor market. Indeed job openings stayed 35.5% above the pre-pandemic level in the first two weeks of July (see chart 18). That said, both the numbers of business applications and people saying that they are employed declined slightly since the end of June, signaling more intense labor market competition in the past two weeks (see charts 19 and 20).
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
|U.S. Chief Economist:||Beth Ann Bovino, New York + 1 (212) 438 1652;|
|U.S. Senior Economist:||Satyam Panday, New York + 1 (212) 438 6009;|
|Contributor:||Shuyang Wu, Beijing|
|Research Contributors:||Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
|Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai|
|Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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