High-Frequency Data Show Delta Fearmongering Softens Economy


What worries us is macroeconomic data has already begun to slow amid unprecedented fiscal and monetary stimuli in history, and all those tailwinds could soon become headwinds.

For instance, retail sales plunged again in July, and the employment and industrial production data are becoming disappointing considering the level of stimuli.

One month after the BEA shocked Wall Street with its first estimate of Q2 GDP, which was a significant miss to expectations of 8.5%, printing at just 6.5%, last week far fewer fireworks when the BEA released its first estimate of Q2 GDP, which came in at 6.6% which was also a miss to forecasts of 6.7%.

As the economy slows, Goldman Sachs slashed its Q3 GDP estimate of 8.5% earlier this month and now sees just 5.5% growth in Q3. We noted that "a sudden negative change" occurred in the economy because consumer spending is collapsing.

And while most banks have been quick to attribute the sudden slump in retail sales to Delta fears, Morgan Stanley's chief equity strategist Michael Wilson told clients, "disappointing retail sales and consumer sentiment suggest the US consumer is fading," and while he shares our view that most blame Delta he, like us, thinks this is more about a payback in demand.

Broadly speaking, US economic surprise data, which measures the degree to which the economic data is either beating or missing economists' forecasts, turned negative in late July and continues to plunge.

For a real-time glimpse of the economy (courtesy of Bloomberg), otherwise known as high-frequency data, there are signs that airlines, hotels, and restaurants are experiencing a slowdown in activity as mainstream media fearmongers the Delta variant.


The number of travelers moving through airport checkpoints has started to drop again. 

On Tuesday, 1.47 million travelers took flights, the fewest in more than three months, according to Transportation Security Administration data. The seven-day average has declined to around 1.76 million passengers a day in late August from around 2.05 million a month earlier. 

While this partly reflects the end of the summer vacation season, airlines have also cited the delta variant. There's been a "deceleration in leisure booking and an increase in cancellations," said Helane Becker, senior reseach analyst with Cowen Inc. As companies have delayed a return to offices, the return of business air travel is also likely delayed, she said.

Restaurant Dining

Seated dining at US restaurants has been running at about 10-11% below 2019 levels in recent weeks, after narrowing the gap to just 5-6% below in late July, according to OpenTable, which processes reservations online. Concern about delta and city mandates are playing a role, according to the company.

"We see a pronounced decline in late July and August," said Debby Soo, chief executive officer at OpenTable. "While several factors could be at play here, we believe the primary driver of the downturn is diners' concerns about the rise in Covid cases."

Hotel Occupancy

While leisure travel helped to boost some popular destinations over the summer, hotel occupancy has now declined for four consecutive weeks, according to STR, a lodging data tracker. Average room rates have declined for three weeks. 

Among 25 large US markets, none saw increased occupancy in the week ended Aug. 21 compared with the same week of 2019, STR found. Occupancy dropped by more than 40% in San Francisco, most of any market.

"Demand looks like it is running slightly worse than the typical seasonal decline," said Bill Crow, Raymond James Financial analyst. There's "a chill on travel caused by the delta variant case increases" with business-travel markets doing poorly.

Bloomberg's economist Eliza Winger wrote, "the delta variant has shown some signs of restraining vigor in consumer spending on in-person services. The softer-than-expected July retail sales report, combined with moderating demand for dining out and air travel, and delayed back-to-office plans, flag downside risks to consumer momentum in the second half."

A slowing economy for the Biden administration is a big dilemma and could be used as talking points by Republicans in next November's midterm elections.

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