US economy slowed to 2% in last quarter due to COVID-19 | News, Sports, Jobs
WASHINGTON (AP) – Hindered by increasing COVID-19 cases and persistent supply shortages, the US economy slowed sharply to reach an annual growth rate of 2% during the July-September period, the weakest quarterly expansion since the recovery began after the pandemic recession last year. .
Thursday’s Commerce Department report estimated that the country’s gross domestic product – its total output of goods and services – declined from robust second-quarter growth rates of 6.7 percent and 6.3 percent. % in the first quarter, gains that had been fueled by extensive injections. federal rescue assistance.
The 2% annual growth in the last quarter fell below expectations and would have been even weaker without an increase in business replenishment, which added all the supplies they could get. This restocking added 2.1 percentage points to the quarter’s modest expansion.
In contrast, consumer spending, which powers about 70% of overall economic activity, slowed to an annual growth rate of just 1.6% after jumping 12% in the previous quarter.
Economists are hoping for a rebound in the current period from October to December, with a drop in confirmed COVID cases, an increase in vaccination rates and more Americans venturing to spend the money. Many economists believe GDP will rebound to a solid annual growth rate of at least 4% this quarter.
“The key story at the moment is the improvement of the health situation”, said Gregory Daco, chief US economist at Oxford Economics. “People feel a lot more comfortable moving around. “
Airlines have reported an increase in passenger traffic, companies are investing more and wages are rising as employers struggle to attract more people to the workforce. A pickup in consumer spending could help boost the economy as the end of the year approaches.
At the same time, however, rising prices, especially for gasoline, food, rent, and other basic items, are placing a burden on American consumers and eroding the benefits of higher wages. Inflation has become a threat to economic recovery and a major concern for the Federal Reserve as it prepares to begin withdrawing the emergency aid it provided to the economy following the recession in the last year.
Thursday’s government report, the first of three GDP estimates for the last quarter, showed widespread weakness. In consumer spending, purchases of durable goods, such as automobiles and household appliances, fell by a sizeable rate of 26.2%. Sales of clothing and other non-durable goods slowed to a modest annual gain of 2.6%. And service purchases grew at a rate of 7.9%, up from an annual increase of 11.5% in the previous quarter.
Businesses, too, have held back. Business investment in equipment and factories slowed to a growth rate of 1.8%, following an annual increase of 9.2% in the April-June quarter. Residential construction fell 7.7% after an even steeper drop of 11.7% in the previous quarter.
In the last quarter, exports declined at an annual rate of 2.5% while imports increased at a rate of 6.1%, an increase which contributed to the congestion of ports. The gap between exports and imports subtracted 1.1 percentage points from annual growth in the last quarter.
Opinion polls have shown that the public is increasingly concerned about inflation, a trend that has contributed to a drop in approval ratings for President Joe Biden. Some economists, including Fed Chairman Jerome Powell, attributed the rise in inflation primarily to temporary factors, including congested supply chains resulting from the speed of the economic recovery. Others say they fear inflationary pressures will prove to be more chronic.
Inflation data linked to Thursday’s GDP report showed consumer price increases at a still high annual rate of 4.5% in the last quarter, but down from 6.1% in the second trimester.
Republicans have focused on higher inflation this year to substantiate their accusations that Biden’s economic policies are not working.
Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee, called the new GDP report “awful” and “further proof that President Biden is spoiling the recovery.”
Biden and his Democratic allies tried to push through Congress two major spending bills – one to modernize the country’s infrastructure, the other a social safety net bill that involves climate change, l health insurance and child tax credits, among others. The White House on Thursday unveiled a $ 1.75 trillion social safety net proposal, significantly scaled back from an initial $ 3.5 trillion plan that met resistance from Republicans and two key Democratic senators.
The government’s estimate of last quarter GDP growth on Thursday was still lower than economists’ forecasts for a significant slowdown. The effects of the delta variant, driving some people away from restaurants, retail stores and places of entertainment, have been a major drag on growth.
In September, U.S. employers added just 194,000 jobs, a second consecutive slow monthly gain and proof that the pandemic was maintaining its grip on the economy, with many companies struggling to fill millions of open jobs.
“The delta wave of the pandemic has done a lot of damage – it has made consumers more careful” said Mark Zandi, chief economist at Moody’s Analytics. “The wave of viruses has scrambled global supply chains and disrupted production in many industries and also wreaked havoc on the job market.”
But in recent weeks, viral cases have steadily declined, and many economists say they believe the economy is accelerating again. Zandi is forecasting 6% annual growth for the current fourth quarter, and some economists are forecasting an even stronger rebound, as viral cases continue to subside and supply shortages begin to ease.
For the whole of 2021, economists generally expect growth of around 5.5%. This would be the strongest expansion of the calendar year since the mid-1980s and a marked improvement from the 3.4% drop in GDP in the recession year of 2020. It would also easily exceed the annual economic growth rates of less than 3% that prevailed in the years before the pandemic recession.