Will Delta dent the economic recovery?

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Hiring. Mario Tama/Getty Images

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“America is getting back to work,” said Neil Irwin at The New York Times. The latest figures from the Labor Department showed that 943,000 jobs were added in July, a vast improvement over the average increase of 567,000 in the prior three months. The unemployment rate dropped by half a percentage point to 5.4 percent, a figure that “not too long ago would have prompted quite a few economists and central bankers to declare ‘Mission: Accomplished.'” A particularly good indication of the rebuilding economy is that the number of long-term unemployed (those out of work for six months or more) decreased by 560,000, the biggest drop since the pandemic began. “Despite all the headaches businesses are reporting in trying to attract workers, employers and workers really are connecting with each other at a pace not seen in recoveries from the previous three recessions.”

The numbers could be even better if there were not still too many “incentives not to work,” said The Wall Street Journal in an editorial. Twenty-four states are still offering $300 federal unemployment bonuses. No wonder nearly half of small-business owners say they “had job openings last month they couldn’t fill.” A record 10.1 million jobs were open as of the final day of June. Pay raises and signing bonuses may not be enough to close that gap, said Delphine Strauss at the Financial Times. “The past 18 months have led many people to reassess their working lives.” It’s not just bartenders saying no to “grueling, antisocial hours without job security.” Banks can’t attract junior analysts who’ll accept “all-night PowerPoint marathons” for a six-figure starting salary. “Meanwhile, wage subsidies and higher benefits have helped people hold out for work they want.”

“The bigger point is that job gains are accelerating,” said Robert Burgess at Bloomberg. That should be enough for the Federal Reserve to say the economy has met its threshold for “substantial further progress” and for the central bank to decide it’s “ready to ease its foot off the stimulus pedal.” Failing to do so “will lead to our economy overheating and to unavoidable inflation taxes that hardworking Americans cannot afford.”

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The Fed must still weigh “an enormous, Delta-shaped asterisk,” said Catherine Rampell at The Washington Post. These job numbers were based on data collected in mid July, before COVID cases began to spike dramatically across the country. “We don’t yet know how much damage it will inflict” economically, but recent surveys suggest “Americans who had lately gotten more comfortable resuming their normal lives — traveling, dining out, seeing movies, returning to jobs — may retrench.” Many businesses are already delaying return-to-office plans until October, said Chip Cutter at The Wall Street Journal — or even later. “A range of prominent companies,” including Amazon, Lyft, and Dell, “now predict it will be 2022 before most workers return.” We’ve seen that employees can mostly stay productive while working from home. But as this pandemic drags on, bosses are growing increasingly “concerned about their workers’ mental health and how to keep them motivated.”

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

Economic recovery from Covid ‘running out of steam’ – OECD

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The world’s major economies have seen their rapid recovery after easing Covid restrictions begin to run out of steam in the past month as a resurgence in the virus depressed consumer spending, according to the Organisation for Economic Cooperation and Development.

There are signs that the recovery in the US and Japan is losing momentum, the OECD said, while parts of Europe and China have slowed as consumers remain reluctant to eat out, visit attractions and shop as they did before the pandemic.

The Paris-based organisation said data supplied by its 38 member countries showed that most major economies had passed their 2021 peak levels of growth and while they were still expanding, it was at a slower pace.

Picking out the UK, France and Germany as among those countries in Europe that have begun to see domestic industries stutter and trade with the rest of the world slip down a gear, the OECD said they had been joined by Brazil and Russia in the slow lane.

Economists at the OECD said there were likely to be ebbs and flows in the pattern of recovery because “despite the gradual lifting of Covid-19 containment measures in some countries and the progress of vaccination campaigns, persisting uncertainties might result in higher than usual fluctuations in the composite leading indicators and its components”.

The indicators cover a range of business and consumer surveys, retail sales data, wages growth and international trade alongside figures on the employment and output of the manufacturing, services and construction sectors.

A bounceback last week in the number of jobs created in the US gave a temporary lift to stock markets increasingly concerned that governments will need to reimpose restrictions to prevent the virus spreading.

After reaching $77 a barrel, Brent crude prices have slipped back to below $70 in response to growing concerns that global economic growth has taken a backward step.

Shilan Shah, a senior economist in Capital Economics’ India office, said the outlook for the economies of many emerging markets was also grim as the spread of the Delta variant gathered pace.

In a note headlined the “outlook darkens”, he said: “Experience from elsewhere shows that the economic hit from new virus waves has tended to be less severe than last year.

“But weaker fiscal positions and the limited capacity of health systems to deal with new outbreaks mean that many frontiers are likely to be hit harder than their richer emerging market or developing market peers.”

Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka were highlighted by Shah as having large debts and increasingly heavy demands on their health systems at a time when tourism and other key industries are operating below their capacity.

He said there was likely to be a delay before tourism returned to its pre-pandemic levels, which would hit many countries in Asia and Africa that depend on visitors from abroad to generate foreign exchange.

A fall in demand for basic raw materials from China and other Asian countries would hit metal producers from Peru to Zambia, he added.

Guy Foster, chief strategist at wealth manager Brewin Dolphin, said the slowing growth prospects meant concerns about inflation appear to be diminishing.

“The falling oil price is a major disinflationary force in the US and that should make the pace of price gains more sustainable while we wait for supply chains to start flowing once again.”

He said it may take a while for supply lines from China to Europe and the US to flow normally after Beijing raised the prospect of lockdowns returning to China. “This means supply chain issues could worsen,” he said.

‘House aims to hasten economic recovery by raising agri budget’

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The chairman of the House Committee on Ways and Means said the lower chamber will push for a higher agriculture budget in the proposed 2022 General Appropriations Act (GAA) to fight inflation and hasten the country’s economic recovery.

Albay Rep. Joey Sarte Salceda, the panel chairman, said lawmakers are eyeing to raise the Department of Agriculture’s (DA) allocation by at least 10 percent.

“The economic fleet only goes as fast as the slowest ship. If we move agriculture, we move everything,” he said. “I think we can go [for] at least 10 percent additional funding although we probably need more and I’ll try to deliver more. We have competing budget priorities, but food is the most essential priority.”

Earlier, Agriculture Secretary William D. Dar said he is optimistic that his agency would receive a substantial increase in its budget for 2022, which will allow the DA to hit its production targets.

Based on the National Expenditure Program, Dar said the DA’s budget for 2022—excluding the allocation for government-owned and -controlled corporations under the agency—is estimated at P72 billion, or just P1 billion higher than its 2021 budget.

Moreover, Salceda said “the agriculture budget is still much smaller than it should be. It’s a sector with [an] 8 percent output and 22 percent of the employed force, but just less than 2 percent of direct public expenditures.”

According to Salceda, he had discussions with Dar on the potential of the agriculture sector to resolve price worries and drive economic recovery as well as their local initiatives.

“We had a discussion [last Friday] on the prospects of the agriculture sector. I explained to Secretary Dar three observations. First, prices will go up as the lag-effects of low interest begin to show. The only way to mitigate that is an increase in the stability and volume of food supply,” he said.

“Second, as I explained in a long lecture as laureate of The Outstanding Filipino or TOFIL award, I am seeing signs of a financial bubble in Southeast Asia. You need something of a ‘sponge’ that will suck up excess financial capital. The most undercapitalized industrial sector in the Philippines is the agriculture sector.”

Third, he said, agriculture in the Philippines still has so many “self-imposed restrictions” on land size, efficiency, use, and ownership.

“If we can ease some of those restrictions while investing in its development, we can really boost output, far beyond the 2 percent per year sector growth targeted by the Department of Agriculture,” Salceda said.

“We already secured an 18 percent increase in the research and development budget of the national government. I am confident that the House leadership is convinced of the importance of the agriculture sector.”

Urgent

Following the recent resignation of Budget Secretary Wendel Avisado, lawmakers want the Palace to declare the P5.024-trillion 2022 National Expenditure Program (NEP) as urgent for its fast and smooth passage in Congress.

Salceda, House Committee on Appropriations Chairman Eric Yap and Speaker Lord Allan Velasco, said they are now awaiting the submission of the NEP for 2022.

The Department of Budget and Management (DBM) said it is planning to submit the proposed national budget on August 23, days ahead of their August 25 deadline.

Under the Constitution, the Executive branch has 30 days from the opening of the regular session of Congress to make the submission to lawmakers.

Yap said his committee will start its hearings on the national budget three days after its submission to Congress.

According to Yap, they are targeting to pass the national budget on third and final reading by September 29 or 30.

Among the Covid-19 response efforts that will be sustained through the 2022 budget are the procurement of Covid-19 testing kits, continuous hiring of human resources for health, the establishment of the Virology Institute of the Philippines, and the continuous implementation of health programs in accordance with the Universal Health Care Act. In addition, funds for the procurement of the Covid-19 booster shots will also be allocated under the unprogrammed appropriations.

“We do not have any ounce of worry as we believe that there are many capable public servants who shall perfectly fill the shoes of a DBM Secretary and take up on the task of fulfilling the agency’s mission to lead public expenditure management,” Yap said.

“But regardless of who will be appointed to lead the DBM, I am very confident that the 2022 budget deliberations will be smooth as far as coordinating with the DBM is concerned and it will be passed on time with the able support of our colleagues in Congress.”

Velasco assured the public that the resignation of Avisado will not affect the upcoming budget deliberations in Congress.

“The House of Representatives eagerly awaits the submission of the NEP so we can start the deliberations on the 2022 national budget and pass it on time, much like we did last year,” he said.

Also, Salceda said the resignation of Avisado will “pose no risk to the early passage of the 2022 national budget, as Congress continues to work well with the budget department and its Officer in Charge.”

“To address the most important issue with this resignation, we assure you that this will not hamper the early passage of the 2022 budget. The Speaker and the entire House leadership is committed to fast-tracking the General Appropriations Act in view of the pressing economic circumstances,” Salceda said in a statement.

Bayanihan 3

Meanwhile, Salceda said that discussions on the national budget and a possible Bayanihan 3 are “going strong and well as if no leadership change has taken place.”

“From our perspective, the Budget Department is functioning with very little if any disruption. The DBM bureaucracy is very strong. Just this week, we have had talks with the economic managers, including DBM Officer-in-Charge Tina Rose Canda, to discuss what we could do to fund a possible Bayanihan 3. We discussed this in view of the need for possible ‘ayuda,’ other health interventions such as genome sequencing and additional testing, and more recently, the need to augment healthcare personnel.”

He said the lower chamber and the DBM will meet again this week to further study funding provisions of the Bayanihan bill.

“The first meeting was open and very productive. Offhand, it seems that we will need to realign from the 2021 budget. That’s fine; it appears that we still need the power to realign anyway, with all the ECQs being declared and requiring ‘ayuda.’ The government can’t just keep on declaring savings, and the dividends will also run out at some point,” Salceda said.

“The way I think we will move with Bayanihan 3 is that it bears some degree of particularness on ‘ayuda,’ healthcare interventions, and other key priorities. But it must also have some degree of flexibility in terms of the power of the President to realign funds, should any of the priorities need more money, and the others need less.”

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