Delta variant adds to consumption headwinds

Although 60% of American adults are now fully vaccinated, the uptick in coronavirus infections linked to the Delta variant has been accompanied by a slight rebound in fears over the spread of the virus. While most states appear unlikely to reimpose restrictions on activity, the upturn in infections still poses a downside risk to the economy over the coming months if it prompts people to voluntarily stay away from in-person services. This comes at a time when real consumption growth already appears to be faltering, as higher prices reduce purchasing power. Despite the solid rise in retail sales in June, the 0.9% rise in prices suggests that will translate to a small fall in real consumption for the second month running. The upshot is that real economic growth is slowing more sharply than we had originally anticipated, even before the potential impact of the new Delta variant.