U.S. economy slowed to a 2% rate last quarter in face of COVID-19
Hampered by rising COVID-19 cases and persistent supply shortages, the U.S. economy slowed sharply to a 2% annual growth rate in the July-September period, the weakest quarterly expansion since the recovery from the pandemic recession began last year.
Thursday’s report from the Commerce Department estimated that the nation’s gross domestic product — its total output of goods and services — declined from robust growth rates of 6.7% in the second quarter and 6.3% in the first quarter, gains that had been fueled by vast infusions of federal rescue aid.
The 2% annual growth last quarter fell below expectations and would have been even weaker if not for an increase in restocking by businesses, which added whatever supplies they could obtain. Such inventory rebuilding added 2.1 percentage points to the quarter’s modest expansion.
By contrast, consumer spending, which fuels about 70% of overall economic activity, slowed to an annual growth rate of just 1.6% after having surged at a 12% rate in the previous quarter.
Economists remain hopeful for a bounceback in the current October-December period, with confirmed COVID cases declining, vaccination rates rising and more Americans venturing out to spend money. Many economists think GDP will rebound at a solid annual growth rate of at least 4% this quarter.
“The key story right now is the improving health situation,” said Gregory Daco, chief U.S. economist at Oxford Economics. “People are feeling a lot more at ease about moving about.”
Airlines have reported growing passenger traffic, businesses are investing more and wages are increasing as employers struggle to draw more people back into the job market. A resurgence of consumer spending could help energize the economy as the year nears a close.
At the same time, though, rising prices, especially for gasoline, food, rent and other staples, are imposing a burden on American consumers and eroding the benefits of higher wages. Inflation has emerged as a threat to the economic recovery and a key concern for the Federal Reserve as it prepares to start withdrawing the emergency aid it provided to the economy after the recession struck last year.
Thursday’s report from the government, the first of three estimates of last quarter’s GDP, showed widespread weakness. In consumer spending, purchases of durable goods, like autos and appliances, fell at a sizable 26.2% rate. Sales of clothing and other nondurable goods slowed to a modest annual gain of 2.6%. And purchases of services rose at a 7.9% rate, down from an 11.5% annual rise in the previous quarter.
Businesses, too, held back. Corporate investment in equipment and plants slowed to a 1.8% rate of growth, after a 9.2% annual increase in the April-June quarter. Residential construction declined at a 7.7% rate after an even sharper 11.7% drop in the previous quarter.