Longtime Biden economist Jared Bernstein simply tweeted an explanation in professional jargon: “The economy remains highly elastic to Covid.”
In other words, the economy’s growth slowed from its hot 6.7% second-quarter pace largely for the same reason job growth in August and September fell short. It’s also a major reason that, to the chagrin of American consumers and the White House alike, inflation shows no sign of subsiding anytime soon.
The reason is the persistence of the novel coronavirus, which continues to shape the contours of economic performance in the US and around the world. After rising vaccinations pushed down the pandemic earlier this year, the surge of the Delta variant pushed right back.
“The main reason for the slowdown is the Delta variant,” said Jan Hatzius, chief economist for the Wall Street firm Goldman Sachs.
“It’s clear what’s happened to GDP,” added Betsey Stevenson, a University of Michigan economist who advised President Barack Obama in the White House. “It’s being affected by Covid, not just in the US but around the world.”
“The pandemic,” concluded Mark Zandi, chief economist for Moody’s Analytics, “is still driving the economic train.”
That reality collides with the reflexes of the American political system, which gives every president outsized credit for positive economic developments and outsized blame for negative ones. Right on cue, Stephen Moore — an economic commentator aligned with former President Donald Trump — labeled the new growth report “the latest evidence that Joe Biden’s policies of big government socialism have dramatically slowed the economy.”
Biden’s policies have not been irrelevant to economic performance on his watch. By sending cash into the bank accounts of American consumers, the $1.9 trillion American Rescue Plan passed by Congress in March fueled growth earlier this year. That benefit was at least partly offset, White House economists concede, by rising inflation resulting from surging demand for goods.
But most important has been the yearlong administration of Covid-19 vaccines, which has permitted a substantial, if still incomplete, return toward economic normalcy. The recovery has brought America’s economic output back, alone among its industrialized peers, beyond its pre-pandemic level.
Economists say the Delta variant, its path smoothed by lingering vaccine resistance, set third-quarter recovery back in several ways. It prevented some Americans, and discouraged others, from returning to claim some of the 10 million unfilled jobs in the economy.
And by hitting hard overseas, it further disrupted global supply chains such as those for microchips, complicating the ability of manufacturers to produce cars, trucks and other products reliant on advanced technology. Supply-chain problems represent a major source of the inflation now undercutting the nominal wage gains many workers have received.
Thus the sprawling economic package Biden is trying to conclude on Capitol Hill is not the most important thing he can do to speed recovery over the next year. Whatever the benefits of his Build Back Better agenda for struggling families and the cause of slowing climate change, they will mostly play out over the long term.
“The only economic policy that really matters now is jabs in arms,” said Stevenson, the former Obama economist, a main reason why Biden has abandoned encouragement in favor of pushing vaccine mandates for private businesses as well as the government.
The summer resurgence of Covid, with all its social and economic ripple effects, has helped to significantly erode Biden’s public standing. But the White House has some reason to hope for improved political and economic conditions soon.
Delta-driven case counts, hospitalizations and deaths have been declining. Not coincidentally, the latest figures from the Conference Board show rising consumer confidence in October after three previous months of decline.
Vaccine mandates have led more of those who were initially apprehensive, if not hardcore resisters, to get their shots. The US Food and Drug Administration’s decision on Friday to authorize administration of the Pfizer vaccine for children aged 5-11 promises protection for a large group of the remaining unvaccinated.
“That will slow the spread of the virus to non-kids,” said the University of Chicago’s Austan Goolsbee, another former Obama adviser. “If we are actually putting this thing into the jar, the economy wants to come back.”
Zandi sees a return before long to the 1 million-per-month job gains last reached in July, along with moderating inflation as supply chains improve and demand wanes in the wake of consumers spending down their Covid relief funds. Hatzius, the Goldman Sachs economist, projects a fourth-quarter rebound to 4% or more that the economy can sustain in the 2022 midterm election year.
Yet the economic outlook remains at the mercy of the coronavirus. The course of the pandemic will turn at least partly on conditions abroad, including the potential emergence of stubborn new variants.
“We’re in a sort-of post-pandemic recovery,” concluded University of Maryland economist Melissa Kearney. “Which way that’s going to go isn’t yet clear. The big unknown for Biden in 2022 is, ‘What is Covid going to do?’ ”