WASHINGTON – The US economy expanded at a 6.7 percent annual pace from April to June, the Commerce Department said on Thursday, as the delta version slightly upgraded its forecast for growth last quarter in the face of a resurgence of COVID-19.
The government’s growth forecast in the second quarter – the last of its three – was up from its previous estimate of a 6.6 percent annual pace that will likely mark a high point for the economy’s expansion this year as the virus slows some activity. , the government aid program has stopped and manufacturing supply-chain issues remain.
The government’s report Thursday showed that the country’s gross domestic product – the total output of goods and services – accelerated at a 6.3 percent annual rate in the first three months of the year.
A key factor in the upgraded growth forecast for the April-June quarter was the slightly higher level of consumer spending, which accounts for nearly 70 per cent of economic activity. Consumer spending grew at an annual rate of 12 percent, the fastest expansion since growth in the third quarter of last year, when the economy restarted.
Strong export sales also added to the growth forecast for the second quarter. After declining in the first quarter, exports grew at an annualized rate of 7.6 percent. Business equipment investment was also up from the government’s previous estimate, growing at a solid 12.3 percent.
These gains were partially offset by a sharp increase in imports, which have been offset by economic growth. Imports grew at 7.1 percent year-on-year in the second quarter.
The report showed that an inflationary measure tied to GDP that does not include volatile energy and food costs rose 3.4 percent over the previous year. This is the fastest pace since 1991 and is well above the Fed’s 2 percent target for annual inflation.
During the first half of the year, the economy was being fueled by huge federal support to recover from the pandemic downturn – trillions of dollars in individual stimulus payments, expanded unemployment aid and help for small businesses.
Now, with those programs closed or already ended and the proliferation of the Delta version discouraging some people from flying, shopping and eating out, most economists say they think the July-September period development is slowing down. Most have projected an annual rate of around 4 per cent for the current quarter.
For 2021 as a whole, a panel of forecasters from the National Association for Business Economics has forecast growth of 5.7 percent. It would mark a solid jump from an annual decline of 3.4 per cent last year, when the economy was hit by the pandemic. And it would represent the strongest calendar-year growth since the 7.2 percent increase in 1984, when the nation was emerging from a deep recession.
Oxford Economics’s Lydia Boussour said she expects overall growth of 5.5 percent in 2021 and 4.4 percent in 2022 – double the average calendar-year expansion of the last decade.
“We expect a gradual recovery in the health situation, solid household finances, rebuilding of inventory and additional fiscal stimulus will support the growth momentum in 2022,” she said.
However, an even faster pace of expansion was expected this year. But the rise in COVID-19 cases has undermined growth, recruitment and consumer confidence. In addition, persistent supply chain problems have reduced production at auto plants and other manufacturers, further reducing growth. Supply chain problems are linked to the global boom in the pandemic, which has slowed production of computer chips and other critical components made in Asia.
“The delta version turned out to be a bit of a sandstorm as the economy grew rapidly,” said Sung Won Song, a professor of economy and business at Loyola Marymount University in Los Angeles. “The virus contributed to bridging shortages and labor shortages.”
Most economists expect the economy to grow at least 4 percent next year. That would be twice the modest average annual gain during the decade following the 2008 financial crisis, when the economy was engaged in a long, slow and grinding recovery.
Analysts also expect the delta version to put less pressure on growth next year.
“The delta appears to be winding down, and even if it doesn’t go away, each successive wave should be less destructive,” said Mark Zandi, chief economist at Moody’s Analytics. “I expect the economy, which is closely tied to the path of the pandemic, will rebound as people go back to restaurants and start traveling again.”
Zandi predicted the economy would be strong enough to restore full employment over the next 18 months, with an unemployment rate of around 3.5 percent, by the spring of 2023. It would represent a three-year recovery in the labor market, which lost 22 million jobs in March and April of 2020 after the pandemic hit the economy. This would be a sign of an unusually fast recovery. After most recessions, it typically takes five or six years for the economy to achieve full employment recovery.
The Federal Reserve is nurturing the economy through ultra-low interest rates and $120 billion in monthly bond purchases aimed at curbing long-term lending rates. But last week, the Fed indicated it would start reducing those purchases as soon as November.
By late 2002 or early 2023, the Fed is expected to raise the key short-term interest rate, which affects many personal and corporate loans.
This News Originally From – The Epoch Times