Delta variant prevents U.S. economy from returning to normal

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The most contagious variant of Covid-19 makes people anxious about being with others. This is bad news for the economy as the winter months approach, and it could mean it’s time to get used to a slower recovery.

The return to normal index created by CNN Business and Moody’s Analytics, which tracks the evolution of the US economy compared to the pre-pandemic period, fell to its lowest level since early June. After hovering in the 90% low zone for months, the U.S. economy has returned to 89% of its pre-Covid strength as of September 17. South Dakota is now the only state in the Union to be stronger than it was before the pandemic.

Louisiana is doing the worst, at just 76% of pre-pandemic strength, followed by New York at 78%. But in the case of Louisiana, the state is still grappling with the fallout from Hurricane Ida.

What happened elsewhere is pretty straightforward, according to Moody’s Analytics Associate Economist Matt Colyar: Delta keeps people away from each other.

Some of the components of the Return to Normal Index, such as TSA-reported passenger throughput or Open Table restaurant reservations, show this trend: People are canceling plans to avoid exposure to the virus.

“I’m reluctant to draw too many conclusions from a single data point… but I think it’s part of a trend,” Colyar told CNN Business.

Consumer behavior has changed dramatically during the pandemic. The reopening in the spring, for example, blew up travel bookings and stimulus checks led many people to spend more. But the situation has changed for the worse.

“In the spring, everyone would go out to book vacations and to eat, but there isn’t a driver like that now,” Colyar said.

For example, in late August, Hawaii Governor David Ige urged tourists to stay away due to Delta and the strain it was putting on the healthcare system.

“Moving forward [the recovery] will be a matter of a much slower climb, ”Colyar added.

This will not go unnoticed by American consumers or institutions in Washington. The Federal Reserve, which is due to release its next policy update on Wednesday, is closely monitoring the development of the recovery.

Over the summer, rapid improvements and soaring inflation raised fears of an overheating economy, and the Fed planned to slow the pace of its emergency stimulus program. Now, the oscillations in the economy could force the Fed to keep its foot on the accelerator a little longer.

But there are a few caveats to these findings.

A data point is not a trend, and volatile information can skew what is really going on. Restaurant reservation data, for example, is noisy even though the national trend is a more reliable indicator, Colyar said. As far as travel is concerned, September is a month of low activity as schools restart.

Meanwhile, other parts of the Return to Normal Index continue to improve slowly and steadily. This includes weekly claims for unemployment benefits, as well as monthly job creation figures. Although Delta put the brakes on the latter in August, the labor market continues to recover.

Only time will tell if Delta’s impact is here to stay for the winter.

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