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Updated on: Monday, August 30, 2021, 04:40 PM IST

US economic recovery remains on track amid rising COVID cases: Moody's

ANI
The Bureau of Economic Analysis on August 26 revised its US second-quarter annualised GDP growth estimate to 6.6 per cent from 6.5 per cent.  | Aaron Kittredge

The Bureau of Economic Analysis on August 26 revised its US second-quarter annualised GDP growth estimate to 6.6 per cent from 6.5 per cent. | Aaron Kittredge

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Moody's Investors Service said on Monday it does not expect the COVIDDelta variant's spread to derail the current US economic recovery.
Its baseline forecast for US real GDP growth is 6.5 per cent this year and 4.5 per cent in 2022.

The Bureau of Economic Analysis on August 26 revised its US second-quarter annualised GDP growth estimate to 6.6 per cent from 6.5 per cent. Still, near-term risks to our outlook are tilted to the downside. A slower return to normal conditions in the reopening services sectors and more prolonged supply chain constraints will likely dampen the pace of recovery, but only temporarily.

Similarly, labour frictions (that is difficulties in finding workers despite high unemployment) in high-contact service sectors could linger for longer if the return of unemployed individuals to the labour force is delayed.

"We expect strong consumer demand, backed by strong household balance sheets and improving employment and wages, will continue to support US economic recovery," said Moody's in its latest credit outlook released on Monday.

Data shows that personal disposable income rose 1.1 per cent in July, boosted in part by increased private sector wages and salaries. The labour market is booming with the economy adding around 940,000 payroll jobs in June and July despite labour supply frictions.

While initial claims for unemployment insurance increased 4,000 to 353,000 for the week that ended August 21, it is unclear whether the Delta variant's spread is affecting the labour market.

The data show an unabated recovery in service sectors across all categories. Food services and accommodations are having a strong revival in demand.

However, demand for services has room to grow before the lost ground is recovered. While consumer expenditure on services rose 1.3 per cent above the February 2020 pre-pandemic peak in nominal terms, it remains 2.7 per cent below the February level in real terms.

Spending on services is rising and there is no perceptible pullback yet, said Moody's. "We expect services activity will continue to strengthen overall notwithstanding the COVID situation."

Even though the Delta variant spread could dampen the services recovery and weigh on third-quarter real GDP growth, there is considerable pent-up demand for services. Moreover, said Moody's, households have the financial capacity to ramp up consumption of services to satisfy the pent-up demand.

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Published on: Monday, August 30, 2021, 04:40 PM IST
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