The Delta wave is subsiding, but the economy still faces threats that may keep it from reaching its full potential this year.

The biggest challenge to the economy for the past year and a half has, obviously, been the coronavirus pandemic, which surged this summer because of the Delta variant. Cases, hospitalizations and deaths are all decreasing now, which should clear the way for a strong fourth quarter. However, staffing challenges and supply chain disruptions are continuing.

Businesses in many sectors are struggling with labor shortages, even as many people remain unemployed. Some analysts this summer pointed to additional unemployment payments – which were included by Congress in Covid relief packages – as a factor that could be discouraging people from seeking jobs, but those ended nationwide in early September and were eliminated in about half the states even before then. Nonetheless, the labor force participation rate is 1.7 percentage points below its February 2020 level, meaning 4.3 million fewer people are working than would be if the country had returned to the pre-pandemic rate. Some economists and others are referring to the phenomenon as the Great Resignation.

“Normally after recessions, consumers are reluctant to spend and businesses to hire, and laid-off workers are eager to find a job,” The Wall Street Journal stated. “This time, consumer spending is robust and employers are anxious to hire, but workers aren’t willing or able to come back.”

The Journal went on to note that, although hourly wages in the restaurant and bar sector – which was one of the hardest hit by the pandemic – increased by 12.7 percent from February 2020 to August 2021, employment is still down 7.6 percent. Overtime hours for manufacturing workers, meanwhile, are up 50 percent during roughly the same period.

In September, the economy added only 194,000 jobs, according to the Bureau of Labor Statistics, well below what is deemed necessary for a strong return to early- 2020 employment levels.

Hiring challenges are exacerbating another economic difficulty, as supply chains still have not recovered from the past 18 months. Even as production increases and intercontinental shipments move inventories, The Washington Post noted that, “Many of the goods that are successfully offloaded from ships end up stranded in U.S. ports as trucking companies struggle to hire and rail yards suffer their own backlogs.” As a result, dozens of ships are queued near the ports of Los Angeles and Long Beach because they are unable to unload their cargo.

All of this, combined with massive government spending for Covid relief, has pushed inflation significantly higher. Consumer prices have increased at an annualized rate of around 5 percent for each of the past five months. The Federal Reserve has an inflation target of 2 percent, and, prior to Covid, price growth had generally stayed below that level for years. Members of the Fed’s Federal Open Market Committee have continued to describe inflation, even as recently as at a Sept. 21-22 meeting, as being driven by “transitory factors.”

Consumers are expressing lower levels of confidence, with The Conference Board’s Consumer Confidence Index falling almost 6 points to 109.3 in September, marking the second straight monthly decline.

“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos and major appliances all retreated again,” the board’s senior director of economic indicators said. “Short-term inflation concerns eased somewhat, but remain elevated. Consumer confidence is still high by historical levels – enough to support further growth in the near-term – but the Index has now fallen 19.6 points from the recent peak of 128.9 reached in June. These back-to-back declines suggest consumers have grown more cautious and are likely to curtail spending going forward.”

The Index of Consumer Sentiment from the University of Michigan’s Surveys of Consumers, meanwhile, slipped 1.4 points from September to October and is more than 10 points below where it was in October 2020, when cases and deaths were rising and vaccinations were still just a hope.

“Consumer sentiment has remained for the past three months at the lows first recorded in response to last year’s shutdown of the economy,” the surveys’ chief economist said. “The Delta variant, supply chain shortages, and reduced labor force participation rates will continue to dim the pace of consumer spending into 2022.”

Housing starts increased by 3.9 percent from July to August and were 17.4 percent above the August 2020 level, the Census Bureau and the Department of Housing and Urban Development reported. Existing home sales dipped by 2 percent in August as prices continued to rise, according to the National Association of Realtors. The median price for an existing home in August was $356,700, about 15 percent higher than a year earlier.

“High home prices make for an unbalanced market, but prices would normalize with more supply,” the association’s chief economist said.

The Dow Jones Industrial Average closed at 33,843.92 on Sept. 30, closing out Q3 with year-to-date gains of 10.6 percent. The S&P 500 Index ended the month at 4,307.54, up 14.7 percent for 2021.

The U.S. dollar on Sept. 30 was trading at 0.86 euros, 0.74 pounds, 111.51 yen and 6.45 yuan.

During the first two quarters of the year, the economy grew at annualized rates of 6.3 percent and 6.7 percent. Full-year forecasts are generally in the 6 percent range, so analysts, for the reasons noted above, are clearly expecting to see a slowdown during the second half of 2021. IHS Markit, in fact, is forecasting Q3 growth of just 1.4 percent. What should have been a year of unfettered expansion has instead become a halting recovery, with supply chain and labor issues combining with a virus variant – and vaccine resistance among a sizable portion of the population – to tap the brakes on the country’s economic engine. Although some measures have been implemented to mitigate supply bottlenecks, including 24-hour operations at the Port of Los Angeles, holiday shopping could be disrupted, further cutting into economic growth. It is tempting to say, in frustration, that, this year, people responsible for policies that have contributed to these difficulties should get only coal in their stocking – but even that might be sitting on a ship off southern California come Christmas morning.