Delta variant likely slammed brakes on US economic growth in third quarter

319
SHARES
2.5k
VIEWS

You Might Also Like


– Advertisement –


According to a Reuters survey of economists, GDP growth grew at a 2.7% annual rate in the last quarter

– Advertisement –

The US economy is expected to grow at its slowest pace in more than a year in the third quarter as COVID-19 infections flared, further straining global supply chains and creating shortages of goods such as automobiles, spurring consumer spending. Almost impressed.

The Commerce Department’s advance GDP report on Thursday is also expected to show strong inflation, driven by a broader slowdown in the economy and pandemic relief funds from the government, a cut in growth. Fiscal stimulus and Hurricane Ida, which devastated US offshore energy production in late August, also weighed on the economy.

advertisement

Get Granthshala Business on the go by clicking here

But there are signs that economic activity has picked up at the end of the quarter amid a decline in coronavirus cases, driven by the delta version.

– Advertisement –

“Delta is the biggest reason we have this noticeable slowdown,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “We are going to see growth pick up again in the fourth quarter and in the first half of next year as the impact of the delta version begins to subside. That doesn’t mean we won’t have future waves of COVID, but With each passing wave, the economic cost is going down.”

According to a Reuters survey of economists, GDP growth grew at a 2.7% annual rate over the past quarter. However, the survey was conducted before the data was released on Wednesday, showing a sharp increase in the goods trade deficit in September amid a fall in exports.

The biggest goods trade deficit on record prompted some Wall Street banks to cut their GDP growth forecast, including Goldman Sachs, which cut its forecast by half a percentage point to 2.75%. The Atlanta Federal Reserve lowered its previously lower forecast by 0.5% to a pace of 0.2%.

Durable goods orders drop for the first time since April

Despite the actual numbers on Thursday, the economy’s performance in the last quarter was perhaps the weakest since the second quarter of 2020, when it suffered a historic contraction in the wake of stringent mandated measures to contain the first wave of COVID-19 infections . The economy grew at 6.7% in the second quarter. The Delta version further exacerbated labor shortages at factories, mines and ports, disrupting supply chains.

The expected modest growth is mostly coming from a moderate pace of inventory drawdown. Overall inventory accumulation is likely to remain weak, particularly due to the shortage of motor vehicles. Outside of the shutdown in the spring of 2020, September was the worst month for automotive production since 2010 due to a global shortage of semiconductors.

Citigroup economist Veronica Clark said, “The biggest boost to GDP should come from a slower decline in inventory compared to the second quarter, as supply crunch issues initially presented through weak inventory, but are now impacted by consumption.” has become a hindrance.” New York.

Consumer spending, which accounts for more than two-thirds of US economic activity, is projected to halt after a strong 12% growth momentum in the April-June quarter. Although automobiles would be a part of the anticipated stoppage, the Delta version also curtailed spending on services such as air travel and dining out.

ray of hope

Inflation, which exceeded the Federal Reserve’s flexible target of 2%, also eroded households’ spending power. Price pressures and supply chain disruptions prompted the International Monetary Fund this month to cut its 2021 growth forecast for the United States to 6.0% from 7.0% in July.

Biden Team Deploys Yellen to Sell Democrats’ Economic Agenda

Slower growth will have little to no impact on the Fed’s plans, which will begin to ease as soon as it is pumping into the economy through monthly bond purchases next month.

But there is light at the end of the tunnel. A heat wave of COVID-19 infections is behind, with cases dropping significantly in recent weeks. Vaccination has also started. Improvements in public health helped boost consumer confidence this month. The number of Americans filing new claims for unemployment benefits has dropped to a 19-month low.

A separate report from the Labor Department on Thursday is expected to confirm that declining trend.

Initial claims for the state’s unemployment benefits are likely at a seasonally adjusted 290,000 last week, according to a Reuters poll. This would mark the third straight week that claims remained below the 300,000 threshold.

Economists are divided over whether business investment in equipment has maintained the double-digit growth momentum over the past quarter. Wednesday’s data showed a jump in shipments of capital goods, excluding aircraft, in September.

Ken Coleman on workforce flight: The COVID-19 pandemic changed the value of workers in a job

While some economists saw this as a sign of stronger equipment spending, others cautioned that higher prices flatter the value of shipments. There are also concerns that a shortage of motor vehicles hindered efforts by companies to convert or grow their auto fleets.

“Just as the decline in automotive sales is weighing down consumption, the decline in fleet sales is also impacting commercial equipment investment,” said Michael Pearce, a senior US economist at Capital Economics in New York. “The sharp decline in auto and truck shipments meant that, instead of double-digit annual gains, business equipment investment probably contracted slightly in the third quarter.”

Trade was still a drag on GDP growth for the fifth consecutive quarter, despite a sharp decline in industrial goods exports in September. Expensive construction materials and rising home prices weighed on the housing market again in the last quarter, while government spending may have picked up again. (Reporting by Lucia Muticani; Editing by Andrea Ricci)


– Advertisement –

Related News

Next Post

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending News