In a Nutshell: Here We Go Again!

By Ken Herman

"Even if inflation fades in the next few months the damage to consumer purchasing power, to consumer sentiment (including people’s belief they can comfortably retire), and to state, local, and federal budgets will be substantial and lasting."

The Delta variant’s rapid rise in new cases and hospitalizations is stoking concerns about ever getting back to normal.  How is this new surge in cases possible, considering that so many people have been vaccinated?  Over 70% of US adults have received at least one dose of a vaccine, and vaccinations had been shown to significantly reduce the intensity of infections among those vaccinated.  Initially the vaccination process was enough to slow a COVID wave this spring.  But the benefits of vaccines decline over time, and booster shots are not yet available to most Americans.  The Delta variant also spreads faster, increasing risks for the unvaccinated as well as for many older people vaccinated early in 2021.

Overconfidence in vaccinations may have led to a less urgent response to the Delta variant (versus last year’s COVID-19 spread in the US).  While the US has avoided 2021 lockdowns, that is not true for the rest of the world.  New lockdowns are widespread in Asia, Australia, and New Zealand, especially in countries that were slow to vaccinate.  International supply chain disruptions could further prolong the pandemic’s negative economic impact here and abroad.

Although low-vaccination regions are susceptible to the Delta spread, they also tended to be the most averse to restricting activity during earlier waves. Areas that exercised the most caution early in the pandemic tend to be those now with the highest vaccination rates, which so far has protected many vaccinated people from the most severe symptoms from infection.  However, those vaccinated who just get a mild case of the Delta variant are still contagious.

There is very little public appetite for lockdowns. No one in government seems to want them. But, keeping hospitals from being stretched past capacity has again become a priority!  So, where are the needed COVID booster shots?  Are all hospitals using Regeneron antibody rapid response teams like Florida?  Supposedly more vaccines are available, so our government should be making them more available again.  Making vaccines and masks mandatory in critical places could help, especially if vaccine booster shots become available for those of us whose immunity continues declining over time.

Some experts estimate the Delta variant has pushed the vaccination rate needed for heard immunity well past 70%.  But, as important as reaching that level of initial vaccination may be, providing booster shots should become an equal priority.  It is difficult to imagine companies putting up with another year of capacity limits and sick workers when solutions (updated vaccinations and timely use of therapeutics) are already possible.

The Delta variant is showing no sign of cresting in any US region, but cases in the UK brought on by the spread of Delta mysteriously fell off a cliff after peaking July 21, followed by new UK cases which plateaued in the last week. Experts do not expect the US to show a similar drop-off in cases. While some people hope there could be something about Delta that causes it to burn itself out, later timing of second vaccinations in Britain also apparently benefited immunity.  Second shots were apparently given too quickly in the USA (to extend the benefits of being vaccinated as long as they have in the UK).  Quick booster shots in the USA could fix that, if our government would make those vaccine boosters available to everyone (and not just for the most vulnerable).

While we can cross our fingers for all favorable outcomes, there’s also the possibility a new variant could emerge that is even more contagious or lethal. As we saw last year, there were countless examples (when it comes to COVID) that what happens in one country often has no bearing on what happens in another. The presence and timing of more vaccines could also impact the economic impact of our 2nd wave of COVID.

People are also suddenly worried about business conditions, income, and inflation. Consumer confidence plunged to a 10-year low.  Inflation fears are easy to understand, with over 5% consumer inflation and producer prices up 7.8% this year, the biggest 12 month jump ever!  Even if inflation fades in the next few months the damage to consumer purchasing power, to consumer sentiment (including people’s belief they can comfortably retire), and to state, local, and federal budgets will be substantial and lasting. Americans have not experienced real inflation for decades, long enough that many old enough to remember the 1970’s may have forgotten how damaging it can be. This year everyone will be learning about inflation’s negative impact first-hand.

Driven by excessive government spending and liquidity creation there has been no evidence that Americans have dramatically changed their economic behavior since the Delta variant spread throughout the country.  China’s COVID disease is still highly unpredictable, even after 18 months of unprecedented attention by “experts”.  Health as well as inflationary problems are not going away soon.