Delta variant threatens leisure and hospitality businesses

The leisure and hospitality industry has come a long way from the depths of the pandemic, when the most stringent lockdown measures were in place, but the fast-spreading Delta variant threatens to undo the progress made by businesses in this sector, according to a top economist for Bank of America. 

American consumers have driven the economic recovery from COVID-19 with help from generous stimulus payments and the loosening of pandemic-related restrictions, leading them to spend once again on entertainment services like travel and dining out.

“They reinforce one another very powerfully and that created a burst of economic activity over the past few months,” said Michelle Meyer, chief U.S. economist for Bank of America. “And the risk is the threat from Delta will cause a speed bump for the economy when it comes to engagement in these activities.” 

Indeed, Bank of America economists are acknowledging the risk the latest Delta variant-fueled wave of COVID-19 infections poses to the U.S. economy. 

In the spring, the cutback in spending on services was offset by more spending on durable goods, like at-home exercise equipment, for example. But this time around, consumers who relied on stimulus payouts to fund these purchases don’t have the same financial cushion.

“For the wave in the winter, we had two rounds of stimulus in January and in March that allowed people to spend more on durable goods, which offset this weaker services-related spending. This time around it’s not obvious you’ll see this type of rotation. We might see more precautionary savings,” Meyer said. 

Without fresh government restrictions or mask mandates, the extent to which consumers pull back on dining out and traveling depends on how comfortable they are engaging in the sorts of activities that place them in close quarters with strangers. 

“it really depends on consumer choices,” Meyer added. 

“Most visible” at restaurants

Bank of America economists are also looking to history as a guide for how consumers will respond to the persistent threat of COVID-19. 

Between February and May, the number of COVID-19 cases increased in Michigan compared to the rest of the country. Michiganders did not go back into lockdown and no major restrictions were put in place by the state government, putting behavioral changes in the hands of consumers. 

Spending at local bars and restaurants suffered the most, according to Bank of America economists.

“That’s one place where the pull-back could be most visible” going forward, Meyer said. 

And if restaurants must once-again restrict capacity, or revert to only seating customers outdoors, consumer spending will naturally fall. 

Consumers could also become leery of air travel again, still opting to take trips but to destinations that are reachable by car instead of cross country or overseas locales, according to Meyer.