Morning Brief: The pandemic remains a part of the economic story
Myles Udland breaks down Thursday’s Morning Brief, which details the start of economists starting to downgrade Q3 expectations as concerns over the Delta variant's spread is leading to worries of an economic slowdown.
Video Transcript
- And let's talk about the morning brief right now, shall we? And talk about maybe some of the resetting of expectations, speaking of which, for economic growth. Because when it comes to that growth, it looks like we are seeing some downgrades to forecasts. And there are a lot of different reasons why. Myles wrote about some of them in the brief this morning. It's sort of difficult to sift through, Myles. But at the end of the day, maybe the Delta variant is but one contributor.
MYLES UDLAND: Yeah. I mean, I think look, the pace of consumption is clearly pressured right now. And the way that consumers feel about their standing has changed. And there's really no way around that. And we've now seen a few different economists come out and lower their expectations for third quarter growth. A couple of we looked at in today's morning brief, Ian Shepherdson, in front of the program, Pantheon Macroeconomics cutting his third quarter outlook from growth of 10% at an annualized pace to 7%. Bank of America is still forecasting 7%. But tracking data, so real time data as it comes in suggests third quarter GDP may grow something closer to 4 and 1/2%. You'll recall, we saw a 6 and 1/2 rate of growth in Q2.
And so, OK, we can say it's because of stimulus. You know, the team over at Capital Economics is certainly more interested in that idea. We can say that it's because of the Delta variant, we've certainly seen that pressure at least consumer sentiment. So you do have a clean argument that it's weighing on spending patterns there as well. Now, retailers are telling us that, you know what, everything's fine. Walmart says, don't worry about it. We still have people coming into our stores. Our quarter, according to Walmart, there may, June, July quarter got stronger each month. And of course, we really started to see cases of the Delta variant take off at the end of July. So maybe not a story for them. Target, Brian Cornell yesterday discussing strong traffic patterns remaining within their stores.
So there's a little bit of a, I won't say disconnect, but just different views on the overall economy right now from two of your biggest retailers, and then what the economic data is saying. But ultimately what this leads to is a potentially slower path of growth in the third quarter and the fourth quarter, which we had expected. And I think for markets, is that something that resets the hopes for the overall cycle or does it simply just push out growth into 2022? And right now, I don't still mostly see folks saying, well, if we don't grow at 7% or 10% in Q3, that'll just lead to faster growth in Q4, and maybe will continue to grow into the first half of '22 at a faster pace.
We haven't yet seen a wholesale take down of the overall trajectory. But it's certainly something that I think folks are on guard for. You know, and we discussed a little bit of that in the setup for, you know, today's action. Though of course it seems investors are shaking this off. But again, as these stories can go, we just discussed for weeks and weeks how markets were not worried about the Delta variant, but there has been data that comes in that suggests it is having an impact on GDP, and is at least worth taking note of that at this point in time.
- Myles, it sure seems as though the recovery has stalled.
MYLES UDLAND: Yeah, it has leveled out, let's say, right? And growth at a slower pace is the theme that we've discussed for some time because we knew we were going to see growth at a slower pace. Does that mean the economy is contracting? No. Does that mean that we're rolling back into recession? No, it doesn't really mean that at all. I mean, Ian Shepherdson said in his note, we don't think Delta is an existential threat to the economy, but it is a reminder that-- I mean, you just look at the case count, look at hospitalization. This has been a four-wave pandemic now. We're in the fourth wave, and with that has come instability around the economy, questions about the economy, and we certainly hope this is the final wave of COVID cases spreading widely.
But as cases have spread widely through time, it has led to investors, markets, economists, so on and so forth asking questions about the health of this recovery. Not asking whether the recovery will happen, but just where we stand in it. And again, we are at one of those moments. And I think until further notice, you say things will recover fully in time. It just might now be a longer time than we had previously expected.
- Yeah. And I think it's an important point that you made also that the market is not necessarily going to track one-to-one with what we're seeing with the economy. In other words, like we heard from Alli McCartney in the first hour, we could continue to see new rallies here even in environment.
