Oct 4, 2021 - Economy

Emerging from the Delta slowdown

Illustration of a woman wearing pantsuit walking out of a briefcase.

Illustration: Shoshana Gordon/Axios

Friday brought us a pile of fresh data to pick through for signs of the economy’s rebound from the Delta-induced slowdown.

Why it matters: One important indicator of economic activity surprised to the upside. But continuing supply chain problems and so-so August consumer spending may still put economists’ Q3 growth targets (which have already been revised down) out of reach.

Driving the news: The Institute for Supply Management’s Manufacturing PMI index grew to 61.1 in September, from 59.9, indicating an expansion in the overall economy.

  • That’s a good sign. Economists had estimated the index would contract slightly, to 59.5.

The big picture: “This gives the overall impression of an economy that's at least stabilizing, if not re-accelerating,” Steve Chiavarone, portfolio manager and equity strategist at Federated Hermes, tells Axios.

  • He adds that Federated Hermes’ internal reopening index — which tracks activities like office key-card swipes and OpenTable reservation activity — has also been moving higher over the last couple of weeks as new COVID cases decline.

Yes, but: The ISM release showed that employment grew little in the sector, amid stressed transportation networks and slower delivery times.

The intrigue: While ISM overall gave reason for optimism, Friday’s data dump also included consumer spending numbers for August — which, when adjusted for inflation, show a stagnant second quarter for that engine of GDP.

  • Spending grew 0.8% compared with July, according to the Bureau of Economic Analysis.
  • But real, inflation-adjusted spending was only up 0.4%. And after a big downward revision for July — to negative 0.5% — the first two months of the third quarter are basically a wash.
  • “The data make it pretty clear that the third-quarter consumer spending numbers are going to be very disappointing when it comes to GDP,” says Luke Tilley, chief economist at Wilmington Trust.

Our thought bubble: The well-documented supply chain problems are no doubt holding back both consumer spending (not enough goods on the shelves) and manufacturing (there’s still a big order backlog).

The bottom line: "[Friday's] releases were more or less in line with the narrative that the economy and consumer are strong, but the pressures in the supply chain are having a significant, but not game-changing, effect in limiting supply and capping growth,” Matt Peron, director of research at Janus Henderson Investors, wrote in a research note.

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