WASHINGTON – The economy’s continued growth depends on getting the pandemic under control, National Retail Federation chief economist Jack Kleinhenz pointed out on Tuesday.
“We are now in the second half of 2021 and the economy has heated up along with the summer temperatures,” Kleinhenz said. “Gross domestic product surpassed its pre-crisis peak during the second quarter and vigorous growth is expected throughout the rest of the year. 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.”
But 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,” he noted.
“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, the report said.
While recent increases in 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 and June’s 18 percent year-over-year increase in retail sales included increases for department, clothing and electronics stores, all of which had seen weak sales a year ago. Back-to-school shopping, expected to be up 6% according to NRF’s annual consumer survey, will contribute to sales in those sectors. And with a 16.4% year-over-year increase for the first six months of the year, overall retail sales are in line with NRF’s revised forecast that 2021 should grow between 10.5 and 13.5 percent over 2020.
“This is the fastest pace of expansion in decades, but it comes with aches and pains,” Kleinhenz said.
Despite continued unemployment, there are approximately 7 million fewer workers on payrolls than just before the pandemic, and the labor shortage has combined with supply chain disruptions to result in higher prices. Kleinhenz 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 percent over the next year, the highest since a spike in oil prices in 2008, but a Federal Reserve index predicts only 2.75 percent.
Nonetheless, inflation should peak in the next few months, Kleinhenz said, arguing that as supply chain and labor issues and other drivers of higher prices fade, it is unlikely inflation will persist for more than a year.