In normal times, a growth rate of 6.5% would be cause for celebration, and it’s still a pretty good performance during this recovery. Yet it is a disappointment compared to the 8.5% growth rate that economists had predicted.
No more spending, no more inflation
The acceleration of the recovery has boosted consumer spending, including the latest round of stimulus checks, as well as the reopening of the economy and continued vaccination efforts that have allowed Americans to participate in public life again. safely. Consumers spent more on services, particularly on restaurant meals and travel.
Driven by the same dynamic, measures of inflation included in the GDP report rose throughout the spring.
For example, the price index that tracks personal consumption expenditure rose to 6.4% in the second quarter, its highest level since 1982. Excluding more volatile items like food and energy, l The price index stood at 6.1%, the highest reading since 1983.
But the GDP report also highlighted the factors underlying the price increase: “Supply constraints and labor shortages have increased, suggesting a downward revision of our outlook.” said Sal Guatieri, senior economist at BMO. Inventories and residential investment, as well as government spending declined in the second quarter.
While consumer spending was strong enough to offset the brakes on the recovery, “it is clear that these latest headwinds are slowing the dynamics of the economy,” Guatieri said.
This should be calming for anyone who fears the economy is overheating amid unprecedented fiscal and monetary support, noted RSM chief economist Joseph Brusuelas.
Delta is worried
On Thursday, Capital Economics cited “diminishing” fiscal stimulus, price increases, the delta gap and other factors to lower its expectations of GDP growth to an annualized rate of 3.5% annualized in the second. semester, according to comments by chief US economist Paul Ashworth. .
The variant needs to be taken seriously, but it is unlikely to lead to the kind of strict lockdown the nation endured at the start of the pandemic, according to economists and Fed Chairman Powell. However, new health risks could dampen consumer spending as people forgo dining out and traveling again.