The U.S. economy slowed to a modest annual rate of 2.1% in
the July-September quarter according to the government’s second read of the
data, slightly better than its first estimate. But economists are predicting a
solid rebound in the current quarter as long as rising inflation and a recent
uptick in COVID cases do not derail activity.
The increase in the gross domestic product, the economy’s
total output of goods and services, is up from an initial estimate of 2% for
the third quarter, the Commerce Department reported Wednesday. But the revision
was still well below the solid gains of 6.3% in the first quarter this year and
6.7% in the second.
The small increase from the initial GDP estimate a month ago
reflected a slightly better performance for consumer spending, which grew at a
still lackluster 1.7% rate in the third quarter, compared to a 12% surge in the
April-June quarter. The contribution to GDP from business inventory restocking
was also revised up.
The economy’s weak summer performance reflected a big
slowdown in consumer spending as a spike in COVID-19 cases from the delta
variant caused consumers to grow more cautious and snarled supply chains made items
such as new cars hard to get and also contributed to a burst of inflation to
levels not seen in three decades.
While COVID cases in recent weeks have started to rise again
in many parts of the country, economists do not think the latest increase will
be enough to dampen consumer spending, which accounts for 70% of economic
The expectation is that the economy in the current
October-December quarter could grow at the strongest pace this year, with some
economists forecast GDP could surge to an 8% rate in the fourth quarter.
For the whole year, the expectation is that the economy will
grow by around 5.5%, which would be the best showing since 1984 and a big
improvement from last year when the economy shrank by 3.4%. That was the
biggest annual decline since an 11.6% plunge in 1946. when the nation was
demobilized after World War II.
“After experiencing one of the most severe economic shocks
of the past century in 2020, the U.S. economy has displayed one of the most
rapid recoveries in modern history in 2021,” Gregory Daco, chief U.S. economist
for Oxford Economics, wrote in a note to clients. Daco predicted GDP in the
current October-December period would rebound to a growth rate of 5.6%.
So far, the improving economy this year has not boosted the
approval ratings of President Joe Biden because the U.S., with one of the most
rapidly recovering economies, is also caught up in a global supply chain
squeeze that is driving prices higher for everything from new cars and gasoline
to the cost of food and airline tickets.
Biden this week nominated Federal Reserve Chairman Jerome
Powell for a second four-year term to head the central bank. Powell and other
Fed officials had earlier in the year insisted that the spoke in pries was
being caused by temporary factors, such as those snarled supply chains.
However, recently the central bank has stressed that if the
price increase persist it will be ready to start raising interest rates sooner
than expected to slow growth as a way of dampening inflation pressures.
Mark Zandi, chief economist at Moody’s Analytics, said he
now expected the Fed to boost its benchmark interest twice next year in
September and December. Those rate increases will translate into higher
borrowing costs for consumers and businesses.
But analysts don’t believe the expected two quarter-point
rate hikes will be enough to derail the recovery. They are also optimistic that
the global pandemic will be less of a drag next year.
“I think each new wave of COVID cases will be less
disruptive to the economy because more people are getting vaccinated,” Zandi
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