The Delta wave has Americans fearing it's a 2020 economy all over again

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Americans are worried about the economy again from the COVID resurgence fueled by the Delta variant.
The University of Michigan reported the biggest drop in confidence since April 2020, to its lowest point since 2008.
The drop represents "dashed hopes that the pandemic would soon end," economist Richard Curtin said.
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Virus cases are back on the rise and Americans are fearing the worst.

The University of Michigan's consumer sentiment index, which measures how Americans feel about the health of the economy, nosedived to 70.2 from 81.2 in August, notching its lowest reading since 2011. Economists surveyed by Bloomberg expected the index to stay at 81.2. The one-month decline is the seventh-largest in the last five decades and shows a country terrified of a virus resurgence.

The drop shows "a stunning lack of confidence" as the Delta variant of COVID-19 took hold, Richard Curtin, chief economist for the university's Surveys of Consumers, said Friday. On a percentage-point basis, the only larger drops in confidence took place at the start of pandemic shutdowns in April 2020 and during the worst period of the Great Recession in October 2008, according to the report.

The plunge in confidence spanned every part of the economy

Americans' current views of the economy worsened, as did their outlooks for future progress. Concerns around inflation and unemployment intensified. Losses were recorded across age, income, and education groups, and in every region of the US.

The survey covers the first half of August, which saw daily case counts sharply rebound to their highest levels since January. The uptick has already led several state and local governments to reinstate mask-wearing rules and some of the business restrictions seen earlier in the crisis. The sudden return to some pandemic-era norms, particularly after months of vaccination, seemingly shocked Americans who were ready to leave lockdowns in the past.

"Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end," Curtin said.

Delta might not harm the economic recovery as much as people think

Other measures of the virus's impact paint a less worrying picture. Hospitalizations haven't rebounded as quickly. Virus deaths have only ticked slightly higher, likely due to vaccines' success at preventing the coronavirus's worst symptoms.

And recent economic data suggests the recovery was intact through the end of last month, even as case counts began to rise. The US added a better-than-expected 943,000 jobs in July, and the unemployment rate fell to a pandemic low of 5.4%. More recently, filings for unemployment insurance slid for a third straight week and the number of Americans on UI hit the lowest level since March 2020, possibly due to stronger job uptake.

Data on inflation is similarly encouraging. Price growth eased off last month after surging through the summer. Some products powering the decade-high inflation, like used cars and trucks, saw price growth slow to nearly a standstill, suggesting some supply bottlenecks and overwhelming demand cooled in July.

The economy has also adapted to the pandemic in several key ways Improvised solutions such as online video meetings, QR-code menus, and the shift to e-commerce allowed Americans to keep working and businesses to keep operating with minimal physical contact. Those changes could keep the economy afloat even if the Delta variant delays a return to normal, David Kelly, chief global strategist at JPMorgan Funds, said in a Monday note.

A resilient recovery could see the drop in sentiment quickly reverse course, Curtin said. Americans could even "shift toward outright optimism" if vaccination rates improve and the country quickly takes control of the Delta variant's spread, he added.

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