Delta, Hiring Frustrations, Supply Chain Crisis Have Economic Recovery Stuck In Reverse
The U.S. economic recovery is sputtering due to a trio of headwinds, with no sure way of turning it around.
Economic data firm IHS Markit's U.S. Composite PMI Output Index for the month of August sank to 55.4, its lowest level since December and well off the 59.9 measured in July, Reuters reports. The index tracks the manufacturing and services sectors, which combine to account for over three-quarters of the U.S. economy.
A mark above 50 in IHS Markit's index indicates growth, but a slowdown in growth so soon after the historic level of fiscal stimulus provided by the federal government is a sobering surprise for economists, who predicted a much smaller dip when surveyed by Reuters ahead of the data's release.
The three factors adversely affecting the economy are the delta variant-driven spike in coronavirus cases in the U.S. and internationally, deepening supply chain delays and an inability of companies across industries to fill open positions needed to support consumer demand, Reuters reports.
Though economists greeted the U.S. Bureau of Labor Statistics' July report with celebration, a survey of executives that informs IHS Markit's index found that job growth in August was at its lowest point since July of last year, IHS Chief Business Economist Chris Williamson told Reuters.
In addition to delaying workers' returns to the office, the delta variant has heaped new delays on the global supply chain, which has yet to make meaningful progress in clearing backlogs at ports for all sorts of products, CNN Business reports. Multiple ports in China have had to close for brief periods in the past month due to positive tests among dockworkers, leading to capacity being shifted around to nearby ports and causing delays to cascade.
As retail companies have attempted to source products from factories in other countries to avoid China-related backlogs, the coronavirus has frustrated many of those attempts. Case counts have spiked in Vietnam in the past month, causing a stay-at-home order in its biggest city and similar restrictions elsewhere after largely sparing the country through the first 18 months of the pandemic, Reuters reports.
Total factory shutdowns haven't contributed just to price increases but to a sheer inability to obtain some products at all. If such issues persist — and shipping company executives believe they will into next year, CNN Business reports — then retailers will lack the ability to stock and price inventory for the holiday season the way that consumers expect.
The upwardly spiraling prices of goods due to shipping constraints have continually provided fuel to inflation despite the moderating growth of the economy, Reuters reports. That difficult dynamic provides the backdrop for the Federal Reserve's annual symposium, which will again be conducted virtually. The eyes of the world will be on Fed Chair Jerome Powell to see if he announces any change in monetary policy from the crisis management that produced historically low interest rates but put the economy at risk of runaway inflation, Reuters reports.