The Commerce Department reported Thursday that the U.S. economy grew at a 2% rate in the third quarter, its slowest gain in the pandemic era recovery, as supply chain problems and a marked slowdown in consumer spending hampered expansion.
Gross domestic product, which is the sum of all goods and services produced, grew at an annualized pace of 2.0% in the third quarter, according to the administration’s first estimate released Thursday. Economists polled by Dow Jones were looking for a reading of 2.8%.
It represented the slowest GDP gain since a 31.2% drop in the second quarter of 2020, which included the period during which Covid-19 turned into a global pandemic that led to a severe economic shutdown that sent tens of millions into unemployment lines and put an end to unemployment. Choke on activity across the country.
A drop in fixed residential investment and federal government spending helped cap the gains, as did a rise in the US trade deficit, which widened to nearly $73.3 billion in August.
The declines are mostly offset by increases in private inventory investment, meager gains in personal consumption, government and domestic spending, and non-residential fixed investment.
Consumer spending, which makes up 69% of the $23.2 trillion US economy, has increased at a pace of just 1.6% over the most recent period, after rising 12% in the second quarter.
Spending on goods fell 9.2%, led by a 26.2% drop in spending on long-lasting goods such as appliances and cars, while spending on services increased 7.9%, down from an 11.5% pace in the second quarter.
The shift came amid a 0.7% drop in personal disposable income, which fell 25.7% in the second quarter amid the expiration of government stimulus payments. The personal savings rate fell 8.9% from 10.5%.
Federal government spending fell 4.7%, which the Commerce Department said was due to halting services and processing for the Paycheck Protection Program, a pandemic-era initiative aimed at providing bridging funding for businesses affected by the shutdown.
Paul Ashworth, chief US economist at Capital Economics, wrote. “We expect something of a recovery in the last quarter of this year – just because the cars won’t be such a drag and any negative impact from Delta has to be reversed.”
In a separate economic report, jobless claims totaled 281,000 for the week ending Oct. 23, another low in the pandemic era and better than the estimate of 289,000. The total represents a decrease from the previous week of 291,000. Continuing claims fell by 237,000 to 2.24 million, and those who They receive benefits under all programs in the amount of 448,386 to 2.83 million.
Stock market futures remained higher after the report while government bond yields rose as well.
The July-September period saw a major blockage in the country’s supply chain, which in turn weakened the recovery that began in April 2020 after the shortest and most severe recession in US history.
The labor shortage and the increasing demand for goods for services have contributed to the bottleneck that is not expected to ease until after the holiday season.
Despite the weakness in the third quarter, economists largely expect the US to rebound again in the fourth quarter and continue to grow through 2022.
Another important factor for the Q3 number is the summer rise of the Covid delta variant, a situation that has inverted itself across much of the country. Consumer activity, particularly in the vital services part of the economy, appears to have rebounded and could lead to a growth rush late in the year.
“As Delta issues continue to subside, there may be more growth in the fourth quarter as consumers will be more willing to spend on services that include in-person interactions,” said Dawit Kebede, chief economist at the National Credit Union. “Supply chain challenges, however, are likely to persist into next year making it difficult to meet growing consumer demand.”
During the current earnings season, companies have noticed issues with their supply chains, but many say customers are willing to pay higher prices. That, in turn, has helped boost inflation, which is approaching a 30-year high and is also expected by most economists and federal policy makers to subside next year.
Thursday’s data indicated that the pace of inflation had at least taken a step back.
Core personal consumption expenditures, which excludes food and energy which is the preferred metric by which the Fed measures inflation, rose 4.5%, slowing from the 6.1% increase in the second quarter but still well above the pre-Covid pace. The core PCE price index rose 5.3% in the third quarter, down from 6.5% in the prior period.
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