U.S. GDP Growth Slows to 2% in 3rd Quarter

The U.S. economy grew in the third quarter at the slowest rate since the pandemic recovery began in the spring, reflecting the impact of the delta variant and supply-chain constraints.

The Commerce Department reported Thursday that gross domestic product rose at a 2.0% annualized pace in the third quarter, below economists’ forecasts of a 2.8% increase. It was the smallest gain since the 31.2% pandemic-fueled plunge in the second quarter of 2020.

GDP grew 6.7% in the second quarter of this year, which preceded the spread of the delta variant of the coronavirus.

According to MarketWatch, economists attribute the slowdown in the third quarter to fading government support for the economy, supply-chain bottlenecks, and the surge in cases of delta variant.

“Overall, this is a big disappointment given that the consensus expectation at the start of the quarter in July was for a 7.0% gain and even our own bearish 3.5% forecast proved to be too optimistic,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.

“As delta cases continue to subside, there may be more growth in the fourth quarter as consumers will be more willing to spend on services involving in-person interactions.”

— Dawit Kebede, senior economist at the Credit Union National Association

But economists expect strong consumer demand and an easing pandemic to boost growth in the coming months. The Atlanta Fed’s GDPNow model projects a fourth-quarter GDP growth of 6.6%. Its prediction for third-quarter GDP was 0.2%. The Conference Board predicts fourth-quarter GDP growth of 5.2%.

“The third quarter was grim but it has little to say about the fourth quarter. The October-December quarter will be very different; spending on services is already rebounding as delta subsides,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Growth in the third quarter was led by a pickup in inventories. But with supply-chain disruptions making it hard for U.S. stores and factories to get the products and parts they need, spending on goods fell 2.4% in the third quarter, led by a steep drop in sales of cars and other long-lasting manufactured goods.

Spending at hotels and restaurants rose, indicating that the direct damage from the delta variant was relatively modest and has begun to fade. U.S. hotel occupancy was at 65% for the week ended Oct. 16, the highest level since mid-August.

“As delta cases continue to subside, there may be more growth in the fourth quarter as consumers will be more willing to spend on services involving in-person interactions,” said Dawit Kebede, senior economist at the Credit Union National Association.

Photo by Getty Images

Commerce Department, Delta variant, economic growth, GDP, pandemic, supply constraints