Home ›› 30 Jul 2021 ›› World Biz
The US economy likely gained steam in the second quarter, with the pace of growth probably the second fastest in 38 years, as massive government aid and vaccinations against Covid-19 fueled spending on travel-related services.
The anticipated acceleration in gross domestic product last quarter would lift the level of GDP above its peak in the fourth quarter of 2019. Even with the second quarter likely marking the peak in growth this cycle, the economic expansion was expected to remain solid for the remainder of this year.
A resurgence in Covid-19 infections, driven by the Delta variant of the coronavirus, however, poses a risk to the outlook. Higher inflation, if sustained, as well as ongoing supply chain disruptions could also slow the economy. The Commerce Department will publish its snapshot of second-quarter GDP growth on Thursday at 8:30 a.m EDT (1230 GMT).
“Consumers have plenty of income and wealth ammunition to support consumer spending, while business inventories remain lean and restocking efforts are poised to support business investment and overall GDP growth substantially in the second half of the year,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.
The Federal Reserve on Wednesday kept its overnight benchmark interest rate near zero and left its bond-buying program unchanged. Fed Chair Jerome Powell told reporters that the pandemic’s economic effects continued to diminish, but risks to the outlook remain.
The economy likely grew at an 8.5 per cent annualized rate last quarter, according to a Reuters survey of economists. That would be the second-fastest GDP growth pace since the second quarter of 1983. The economy grew at a 6.4 per cent rate in the first quarter, but that is subject to revision.
With the second-quarter estimate, the government will publish revisions to GDP data. Given that this is not a comprehensive benchmark revision, economists expect only modest changes to previously published estimates.
The National Bureau of Economic Research, the arbiter of US recessions, declared last week that the pandemic downturn, which started in February 2020, ended in April 2020.
Economists expect growth of around 7 per cent this year, which would be the strongest performance since 1984. The International Monetary Fund on Tuesday boosted its growth forecasts for the United States to 7.0 per cent in 2021 and 4.9 per cent in 2022, up 0.6 and 1.4 percentage points respectively, from its forecasts in April.
President Joe Biden’s administration provided $1.9 trillion in pandemic relief in March, sending one-time $1,400 checks to qualified households and extending a $300 unemployment subsidy through early September. That brought the amount of government aid to nearly $6 trillion since the pandemic started in the United States in March 2020.
Nearly half of the population has been vaccinated against Covid-19, allowing Americans to travel, frequent restaurants, attend sporting events and engage in other services-related activities that were curbed early in the pandemic.
The pick-up in services likely boosted consumer spending in the second quarter, with double-digit growth anticipated in the segment that accounts for more than two-thirds of the US economy. While spending on goods remained strong, the pace likely slowed from earlier in the pandemic, when Americans were cooped up at home.
Some of the slowdown in goods spending reflects shortages of motor vehicles and other appliances, whose production has been hampered by tight supplies of semiconductors across the globe. Higher prices, with inflation above the Fed’s 2 per cent target, could also be causing some to postpone purchases.
Though the fiscal boost is fading and Covid-19 cases are rising in states with lower vaccination rates, consumer spending will likely continue to grow.
“Those states also tend to be the ones most resistant to public health measures to combat the pandemic, such as mask mandates and limits on indoor activities,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
