The Delta variant could make the American shopper go back into lockdown, BofA says

• The Delta variant could hurt the American shopper, and the economy, BofA Research says.
• As the variant surges, economists predict a pullback in spending given concerns of catching it.
• They cited Michigan, where spending declined after February's Covid wave, despite no change in restrictions.
• See more stories on Insider's business page.

Something may be changing in the American economy for the worse, and it's because of the Delta Covid variant. At least that's what Bank of America research thinks.

The stock market had a major wobble on Monday, July 19, as data on the variant – and how many Americans it's rapidly infecting – challenged economic thinking around the reopening boom, led by consumer spending. In a signal of how seriously the mood changed, previously vaccine-skeptical Republican politicians and Fox News hosts reversed themselves, urging more Americans to get vaccinated.

The American shopper emerged from lockdown to lead the recovery, but that's now at stake.

BofA economists Stephen Juneau and Anna Zhou wrote in a Friday note that the variant is likely to lead to a shift in consumer behavior going forward, citing a 351% surge in the moving average of daily cases since July 21. Accompanied by slowing vaccination rates, they said they "believe the current surge in cases could lead to a sharp pullback in services spending."

Juneau and Zhou wrote that the most vulnerable part of the economy from another COVID-19 wave would be the leisure and hospitality sector, which notably added 343,000 payrolls in June – 40% of the total 850,000 jobs gain.

Another factor they are concerned about with the Delta variant is the lack of government aid. When the pandemic first hit, Americans received stimulus checks and other benefits from President Donald Trump's CARES Act, then another Trump stimulus in late 2020, and finally President Joe Biden's American Rescue Plan, but another isn't being discussed. The $4 trillion infrastructure proposal Biden wants to further stimulate the economy is at risk of being watered down in bipartisan negotiations.

Since governments seem unlikely to implement fresh restrictions as cases rise, the economists predict that most states will likely respond to the surge in infections by pushing people to get vaccinated, meaning that "shi sts in consumer behavior will determine how Delta affects economic activity and experiences during prior waves may not offer the best guide."

They used the example of Michigan to back up their prediction. The state made no changes to restrictions during the Covid wave in late February, but consumer spending still decreased afterward, with services industries taking a major hit as less people dined out, and employment declined.

From a global perspective, BofA's Ethan Harris wrote that several countries are experimenting with permitting or not permitting high-risk activities, and overall, he sees Delta as a "moderate headwind to global growth."

To date, as Juneau and Zhou wrote, there has been little evidence of the variant significantly affecting the economy or spending on services, but with increased hesitancy of being in physical locations, the impact could become more prominent.

And given that Biden officials are considering adopting stricter mask guidance as the variant continues to spike, the consumer-led American boom coming out of lockdown could go back into some form of it.