The economy is growing quickly, but its future still depends on slowing the pandemic as consumers worry about new variants of the virus.
That’s according to National Retail Federation chief economist Jack Kleinhenz, who said that the economy has heated up along with the summer temperatures.
“Gross domestic product surpassed its pre-crisis peak during the second quarter and vigorous growth is expected throughout the rest of the year,” Kleinhenz added. “It is a very different year from 2020 and a much better one. The economic momentum has been helped by government monetary and fiscal policies and, more importantly, the rollout of COVID-19 vaccinations.”
However, the pace of vaccinations “has slowed considerably” and fears of the delta variant of COVID-19 — even though they haven’t impacted consumer behavior yet — are “likely weighing on confidence.”
“Vaccination is the key to further economic recovery, reopening and rebuilding,” Kleinhenz said. “With the outlook for the global economy continuing to hinge on public health, vaccine numbers are extremely important, not just for the United States but for the whole world.”
Kleinhenz’s remarks came in the August issue of NRF’s Monthly Economic Review, which noted that only 57% of the U.S. population had received at least one dose of COVID-19 vaccine as of last week. The statistic came as the latest Blue Chip Economic Indicators report cited uneven rollout of vaccines amid the emergence of new virus variants as the greatest threat to the economy. Faster vaccination holds the greatest opportunity for growth, according to the report.
While recent increased infection rates and renewed mask mandates might have an impact on consumer behavior, the third quarter so far resembles pre-pandemic activity as the reopening of stores and the economy progresses, Kleinhenz said.
Consumers are shopping, with sales in July were up for the third straight month. And many forecasts are predicting the biggest back-to-school shopping season in recent years.
Kleinhenz noted the labor shortage and supply chain disruptions are setting the stage for increased inflation. He warned that inflation expectations “can become self-fulfilling” with workers demanding higher wages if they expect prices to go up, forcing employers to raise prices and creating a continuous cycle. A University of Michigan survey last month found consumers expect inflation of 4.8% over the next year, the highest since a spike in oil prices in 2008. But a Federal Reserve index predicts only 2.75%.
Nonetheless, inflation should peak in the next few months. As supply chain and labor issues and other drivers of higher prices fade, it is unlikely inflation will persist for more than a year, Kleinhenz said.