Delta Impact on Consumer Behavior Will Delay Tapering Announcement
The resurgent virus should keep a lid on Treasury Yields.
Expectations are mounting for a September announcement of tapering plans by the Federal Reserve (Fed), prompted by the strength of the economy and comments from more hawkish members of the FOMC, particularly Boston Fed President Eric Rosengren. We don’t see that happening.
The Delta variant is throwing a wrench into the forward progress of the economy. Although Fed Chair Powell believes that “it’s not yet clear whether the Delta strain will have important effects on the economy,” our read of the latest data suggests that it is already having a negative impact on consumer behavior.
After a large downside miss to July retail sales, spending on COVID sensitive activities such as restaurants, air travel, and hotels has weakened further in August. High frequency indicators of broader consumer activity such as daily credit card spending also show softening over the past few weeks.
The Recovery in COVID-Sensitive Activities Has Stalled
Change Relative to Same Day in 2019
Source: Guggenheim Investments, Bloomberg, STR. Data as of 8.17.2021 for diners and TSA, 8.7.2021 for hotels.
Surveys also confirm the impact that the Delta variant is having on consumer sentiment. Consumers now expect a more negative economic impact from COVID than they have for several months.
Consumers Expect Renewed Economic Stress from Delta Wave
Expected GDP Impact of COVID Over the Next 12 Months (Median, 7 Day Moving Average)
Source: Guggenheim Investments, Cleveland Fed. Data as of 8.17.2021.
In addition, last week’s unexpected plunge in the University of Michigan Consumer Sentiment survey bodes poorly for consumer spending based on its historical relationship with consumption.
Sharp Drop in Sentiment in Early August Could Weigh on Consumption
Source: Guggenheim Investments, Bloomberg. Data as of 8.13.2021 for sentiment, 7.31.2021 for PCE.
The good news is that our economic recovery is unlikely to fully reverse, given lack of political will for a return to stricter lockdown measures. But evidence of a slowdown in third quarter economic activity will continue to mount in the coming weeks, putting the Fed’s 7 percent real GDP growth projection for 2021 out of reach. This string of weaker data will likely prompt the Fed, led by Chair Powell and Governor Brainard, to take a more cautious approach to the timing and speed of tapering plans, in turn keeping Treasury yields low.
From the Office of the Global Chief Investment Officer, Scott Minerd
By the Guggenheim Investments Macroeconomic and Investment Research Group
- Brian Smedley, Chief Economist and Head of Macroeconomic and Investment Research
- Matt Bush, CFA, CBE, U.S. Economist, Macroeconomic and Investment Research
Important Notices and Disclosures
Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values to decline. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
VIDEOS AND PODCASTS
Scott Minerd, Chairman of Investments and Guggenheim Partners Global CIO, joins Bloomberg TV on Fed Day to discuss the Federal Reserve’s largest rate hike since 1994.
Jenny Marler, head of Guggenheim Real Estate, focuses on hotels and hospitality, and Jerry Cai, a Vice President in the Macroeconomic and Investment Research Group, reviews the Fed’s decision and other data.
Guggenheim Investments. All rights reserved.
Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.