SALT LAKE CITY — A growing number of economic red flags are appearing amid rising concerns that resurgent COVID-19 infection rates could lead to a secondary U.S. economic dip.
Declining consumer sentiment, a freshly janky investment community and new rumblings of caution from fiscal policymakers may foreshadow some slowing of a recovery that's been moving in a positive direction for months.
For now, data reflects Utah's economy continues to be among the most robust in the country, but it's one that would not be immune from exigent circumstances, should they worsen.
Long-running, benchmark consumer surveying from researchers at the University of Michigan found sentiment among U.S. shoppers took a precipitous turn in the first half of August, declining over 13% from July. The report notes the change was among the biggest negative drops on record, all of which portended significant economic swings.
"Over the past half-century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy," the report's chief economist Richard Curtin wrote. "The only larger declines in the Sentiment Index occurred during the economy's shutdown in April 2020 (-19.4%) and at the depths of the Great Recession in October 2008 (-18.1%)."
The new pessimism, researchers found, was widespread across U.S. geographic regions as well as income, age and education subgroups. The sentiment change also crossed issue boundaries including personal finances, prospects for the wider economy, inflation and unemployment.
"There is little doubt that the pandemic's resurgence due to the delta variant has been met with a mixture of reason and emotion," Curtin wrote. "Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end."
While August data for Utah consumers has not yet been released, analysis from the University of Utah's Kem C. Gardner Policy Institute showed a 6% drop in statewide consumer sentiment in July from June levels. The change also put Utah's index below 90 for the first time this year though the mark, which uses metrics identical to the University of Michigan report, has been consistently above the national average since last fall.
Investors, rattled by the continued surge in new COVID-19 cases and concerns that recovery-related inflation rates could rise faster, and continue longer, than early predictions, drove volatility in the three major U.S. stock indexes, all of which closed down for the week on Friday.
Signs that the Federal Reserve Board will pull back some of its massive inputs later this year, efforts that have been underway throughout the pandemic to bolster the U.S. economy and including $120 billion in monthly purchases of U.S. Treasury and mortgage-backed security bonds, were further confirmed in minutes of the board's July meeting released last Wednesday.
But numerous national outlets reported the meeting notes also showed continued divisions among board members regarding when to begin so-called "tapering" changes amid renewed concerns about pandemic impacts.
Earlier this month, Federal Reserve Bank of San Francisco president Mary Daley told "PBS Newshour" that the functional reality is that as goes COVID-19, so goes the economy.
"What we're seeing is that we're not fully beyond COVID," Daley said. "And people are still very disrupted from dealing with a global pandemic. They lost their jobs. They lost their livelihoods. They were on the brink of losing their homes. Housing insecurity is really critical.
"So, we really have to get through this fully."
But does the current activity reflecting the thoughts of consumers, investors and federal policymakers guarantee a pending downturn?
Perhaps, but even if that is the outcome, local economists and business leaders believe Utah is prepared to navigate any pandemic recovery speed bumps better than most.
Utah is definitely better situated economically than the nation as a whole. We entered the pandemic stronger and experienced a more robust recovery earlier. Our economic diversity is one reason for this economic strength.
–Phil Dean, Gardner Policy Institute public finance research fellow
Phil Dean, former Utah state budget director and current public finance research fellow with the Gardner Policy Institute, said Utah would have the advantage of entering any upcoming market troughs in a state of reasonably good economic health.
"Utah is definitely better situated economically than the nation as a whole," Dean said. "We entered the pandemic stronger and experienced a more robust recovery earlier. Our economic diversity is one reason for this economic strength."
But Dean also noted the state's economy doesn't function in a bubble and outside forces cannot be completely sidestepped.
"At the same time, Utah is not an economic island," he said. "So what happens in the broader U.S. economy definitely impacts us."
Salt Lake Chamber President and CEO Derek Miller echoed Dean's sentiments about the state's current robust performance and positive economic position but says he is also hearing a bit more caution from Utah business operators.
"If I were to summarize both my own feelings and what I'm hearing from other business leaders in a word, it would be cautiousness," Miller said. "This spring and over the summer there was what I would call cautious optimism about our prospects for coming out of the pandemic and I think we all thought there was a light at the end of the tunnel.
"That optimism has not turned to pessimism, but the cautious feelings are there."
Miller said evidence of this renewed caution can be seen in adjustments Utah businesses are making to near-term strategies, including many deciding to delay return-to-work plans that were made before the rise of the delta variant.
Missy Greis, owner of Publik Coffee Roasters, an independent Salt Lake food and beverage operation with multiple locations, said her businesses are not seeing any slowdown so far as COVID-19 cases rise. But Greis said she does have concerns about the resurgent infection rates and potential impacts on both her employees and customers.
"My biggest concern this week is the rise in cases, coupled with back-to-school and classrooms with younger kids who haven't had the opportunity to be vaccinated and are not wearing masks," she said. "I have employees with school-aged children whose ability to work remotely, if quarantined, is challenging.
"The surge in cases is also becoming a conversation within the community about ordering takeout versus dining in — obviously, eating and drinking require removing your mask indoors. Publik is ready to adapt to any CDC guidelines, which we have been carefully following throughout the pandemic."
The most recent statewide statistics also reflect no clear signals of any significant slowdowns thus far in Utah.
Utah Tax Commission data for taxable sales in June details year-over-year increases for every tracked business category with an average bump, overall, of 20%. A few sectors saw markedly higher growth, including the hospitality/accommodation industry up nearly 130% over the same month last year, mining/quarrying/fossil fuel extraction up over 50% and Utah food/beverage service businesses seeing an increase north of 37% over June 2020.
A Utah Department of Workforce Services update released last Friday pegs the state's July unemployment rate at 2.6%, a number bettered right now by only New Hampshire, according to the U.S. Bureau of Labor Statistics. The state has also added over 65,000 new jobs since last July.
Mark Knold, chief economist for Workforce Services, said the state's low unemployment and stellar job growth rates are being fueled by a booming Utah economy that returned to pre-pandemic performance levels months ago.
"Labor shortages have been a buzzword recently, but despite that the Utah economy has grown significantly over the past three months," Knold said in a statement. "By late spring Utah commerce had reverted to its pre-COVID levels. Job openings were abundant. Labor, however, did not return as quickly, and thus the call of labor shortages. But labor has been responding.
"Otherwise, the Utah economy would not have been able to produce two full percentage points of job growth in just the past three months."