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American Consumers In A Difficult Spot

September 12, 2021

The American consumer is dealing with a lot of problems: higher prices, shortages, and the Delta variant. America's economy can't fully recover without help from its consumers, who are the backbone of the nation's economic strength. But rising inflation, goods shortages, supply chain issues, and rising coronavirus cases have left consumers in a difficult spot.

Consumer spending contributes some two-thirds of America's gross domestic product, the broadest measure of economic activity. But consumer spending has taken a hit in some parts of the country as the Delta variant spreads.

The Federal Reserve said in a report last week that economic growth "downshifted slightly to a moderate pace" over the summer as worries over the coronavirus caused consumers to dine out and travel less. The central bank's Beige Book report, which compiles anecdotes from businesses, found that retailers in New York have grown less optimistic about their prospects for the rest of 2021. Car dealers say there's "no end in sight" to the chip shortage that has slashed their inventories.

In Atlanta, restaurants and retailers had trouble meeting demand because of persistent labor shortages. In Chicago, consumer spending decreased slightly but remained at a high level even as leisure and hospitality companies suffered.

Inflation climbed to a 13-year high over the summer, before moderating in July. But price hikes have hit everything from lumber to used cars, and economists are worried that some consumers suffering from sticker shock may choose to skip purchases. Businesses are struggling with supply chain issues and long lead times, which are pushing up the price of some products even further.

The jobs recovery continued early in the summer, with some 2.6 million jobs added back to the economy between May and July. Economic activity picked up as well, as people traveled again and the reopening continued. But then, worries about the Delta variant took hold and optimism waned. Retail sales contracted and consumer sentiment plummeted; the August jobs report was far weaker than expected.

Now schools are reopening and parents are bracing for the possibility that their children may be exposed to the virus in class. Meanwhile, many companies are delaying their return to the office because of Delta. None of that is helping consumer sentiment. This week's economic data, including retail sales and inflation, will provide a better sense of how the economy fared in August and how badly the Delta variant has hurt the recovery. The economic comeback might continue at a slower pace for the rest of the year.

Is there a silver lining? "Going into this summer, the biggest threat to the US economy and financial markets was that the recovery would be so rapid and so strong as to cause the economy to overheat. The speed bumps we have encountered this summer have significantly reduced this risk," David Kelly, chief global strategist at JPMorgan Funds, wrote in a recent note to clients.

Analyst View

US consumers are under the siege of higher prices of consumables, shortages of workforce who are terrified by the fear of the virus, and the Delta variant that has refused to succumb to the vaccination campaign. The rising Inflation figures are evidence of a struggling economy. The worries are with us for now and it will take some time to revert to the pre-covid era.


















SOURCE: CNN