Pollack: Delta variances

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co. | Rose Law Group Reporter

The Delta variant is dominating the news as the U.S. government reported more than 100,000 daily infections last week, the most in a single day in the last six months. Some of the hardest-hit areas in the South are now promoting masks and vaccinations which have been highly effective at reducing severe cases and preventing deaths.

There is also hopeful news from around the globe in areas that have experienced the Delta variant before the U.S. An article in Fortune magazine suggests that data from India and the U.K., which have been significantly impacted by the variant, is showing that the contagion is dissipating as fast as it emerged. And no one knows for sure why Delta cases have dropped so fast.

India was hard hit by the Delta variant. Hospitals became overwhelmed with patients and oxygen supplies became depleted. Delta cases reached over 400,000 per day, but just a month later they dropped by 80% to 85,000. Last week, India recorded about 30,000 new cases. When the Delta surge hit, India only had 4% of its population vaccinated with the first dose. Some initial studies suggest that 70% of Indians are positive for COVID-19 antibodies, reaching the threshold for herd immunity. The price, however, is estimated at around 3 to 4 million deaths.

The same pattern was observed in the U.K. where vaccines are more available. Cases peaked at nearly 60,000 in mid-July, then fell sharply. Two weeks later, daily cases were down to about 22,000. Once again, the reason for the decline is unknown, although the U.K. has one of the highest vaccination rates (57% are fully vaccinated) and there is little vaccine hesitancy among the population. The U.K. also uses a track and trace program that tells people who have been exposed to COVID-19 that they need to self-isolate. Some scientists suggest that as more of the population becomes vaccinated, mask wearing, and self-isolating have a greater impact on suppressing transmission. Others noted that testing in the U.K. has declined some which reduces the number of cases.

While there is no firm known reason for the decline in infections in India and the U.K., the hope among some scientists is that we may see the same pattern in the U.S. However, we have a lower vaccination rate and therefore the Delta variant has more staying power. In states with high vaccination rates, we could see infections start to drop off. Hopefully we are near the peak of the Delta surge. The next few weeks may tell us if we will see a U.K.-style decline in infections.

Bottom line: vaccination has been the key differentiator in outcomes for personal and community health as well as the degree of economic disruption with each new wave. And if supply is available, then each region controls their own destiny.

Now, onto the data.

U.S. Snapshot:

  • The Blue Chip panel forecasting economic indicators decreased their 2021 real GDP growth estimate from 6.6% to 6.2%. The decline in inventories and net exports were a drag on the positive momentum seen since the recovery started. While the expected growth is lower, it remains well above the any level we have recently seen.
  • U.S. Consumer Sentiment saw a sharp decline in the first half of August, with a drop from 81.2 in July to 70.2 in August. The losses were across age groups, education, and regions. The harsh reaction to the increase in COVID-19 cases has dashed any hopes the pandemic would soon be over.
  • Job openings reached an all-time high level of 10.1 million in June. The primary sector affected by labor shortages has been in leisure and hospitality. Unemployment benefits, childcare and concerns for the virus have been cited as reasons why people are not returning to the workforce.
  • The consumer price index increased again in July, but at a slower rate. July’s growth was 0.5% for all items and 0.4% for core inflation. While inflation remains high, the Fed has not indicated a change in policy. We will all continue to watch both inflation and the jobs market to see if the Fed is eventually forced to change its policy.

Arizona Snapshot:

  • Taxable retail sales continued to grow in the month of June in Arizona and Maricopa County. Arizona saw a slight increase of 0.1% for the month and 17.0% from a year ago. Similarly, Maricopa County had monthly a gain of 0.9% and 19.2% from June 2020. For fiscal year 2021, Arizona’s retail sales grew 16.4% while Maricopa had an increase of 17.4%.
  • According to CBRE, the office market continues to adapt to the post-COVID world. Absorption declined in the second quarter. The vacancy rate is up to 19.7% which is the fifth consecutive month of vacancy increases.
  • The industrial market continues to grow based on CBRE’s latest data. In the second quarter, net absorption reached 6.4 million square feet and 3.2 million square feet was delivered. With absorption outpacing deliveries significantly, the vacancy rate is now down to 4.7% and the average rental rate increased to $0.74 per square foot.
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