The U.S. economy hasn’t exactly fallen into a rut, but the
U.S. may have just suffered its biggest hiccup since the coronavirus pandemic
erupted in early 2020.
Gross domestic product, the sum of everything that goes on
in the economy, likely grew in the third quarter at the slowest pace in a year
and half, Wall Street predicts. Third quarter GDP data will be released next
The nation’s economic growth is expected to be cut by more
than half to a 3.1% annualized pace in the period covering July through
September, according to economists polled by The Wall Street Journal. The U.S.
expanded at a 6.7% annualized clip in the second quarter.
Other economic fortune tellers say even slower growth is in
the cards. IHS Markit, the gold standard among Wall Street DJIA, +0.18%
forecasters, estimates GDP is on track to grow just 1.5%.
The Atlanta Federal Reserve’s GDPNow forecast is even
The big story was the surge in coronavirus cases tied to the
delta variant during the third quarter.
Toward the end of the summer Americans went out less and
traveled less to avoid catching the virus. That meant reduced spending at
hotels, restaurants, theaters, vacation resorts and the like.
The result: Consumer spending, the biggest engine of the
economy, may have grown a tepid 1% or less.
By contrast, spending soared by a 12% annual rate in the
spring and 11.4% in the first three months of the year.
The delta variant wasn’t the only source of reduced
spending. Massive government stimulus provided by the federal government had
mostly dried up by the end of the third quarter. Huge stimulus payments to
individuals and families boosted spending earlier in the year.
Even when consumers wanted to spend more, they sometimes
couldn’t find enough products to buy because of persistent labor and supply
shortages that are afflicting the economy.
Case in point: New cars and trucks.
A global shortage of computer chips has slowed production
and sent prices soaring to record highs, as the U.S. experiences its worst bout
of inflation in 30 years. Falling auto sales is another big contributor to
reduced consumer spending.
“Delta, fiscal stimulus fading and supply constraints likely
restrained U.S. GDP,” economists at TD said in note to clients.
Other factors that suppressed growth over the summer were
record international trade deficits and flatlining home sales. Builders also
can’t construct enough houses because of labor and material shortages.
There is some light at the end of the tunnel, however. The
economy appeared to perk up in the first month of the fourth quarter as delta
faded and Americans went back to their spending ways.
Economists predict GDP will accelerate to 4.8% in the final
three months of the year.
“There are all sorts of worries about inflation, supply
chain snafus and labor shortages, but the economy continues to chug along quite
solidly,” said Joel Naroff of Naroff Economic Advisors.
The recovery would be even faster, they say, if the labor shortages
and supply bottlenecks eased soon. Yet those problems are expected to fester
well into 2022.
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