U.S. economic growth remained strong in the second quarter as increased vaccinations and the return to pre-pandemic activities sparked a pent-up wave of demand, according to data released by the Commerce Department on Thursday.
Gross domestic product (GDP) grew at a seasonally adjusted annualized rate of 6.5% from April to June, the Commerce Department said, slightly above the 6.3% grid in the first quarter.
The annualized growth rate shows how much the U.S. economy would have grown had the pace of the second quarter lasted 12 months, and the new numbers helped push total GDP past its pre-pandemic peak in February 2020, effectively closing the COVID-19 production gap.
A number of economists expected GDP growth of around 8% in the second quarter, consensus estimates show, as a U.S. public increasingly vaccinated against COVID-19 returns to restaurants , bars, hotels, entertainment venues, sporting events and vacations. hampered by pandemic restrictions and health concerns.
The $ 1.9 trillion COVID-19 economic relief bill signed by President BidenJoe BidenCruz tears up his GOP colleagues who are “complicit” in Biden’s spending program. late March also contributed to GDP growth. But, a sharp rise in inflation, supply shortages caused by the rush to reopen and the surge of the COVID-19 delta variant later in the quarter have caused some analysts to lower their estimates shortly. ahead of Thursday’s report, which was well below expectations.
“The increase in real GDP in the second quarter reflected increases in consumer spending, business investment, exports, and state and local government spending which were partly offset by declines in inventory investment, in housing and federal government spending. Imports, a subtraction in the calculation of GDP, increased, ”the Commerce Department said.
Consumer spending grew at an annualized rate of 11.8% in the second quarter, slightly above the first quarter pace of 11.4% as Americans shifted their purchases from goods to services.
Spending on all goods increased by 11.6% annualized in the second quarter, compared to 27.4% in the first, while the growth in spending on services fell from 3.9% to 12% between April and June .
“The long-awaited pivot in demand for services began in the second quarter of 2021,” wrote Joe Brusuelas, chief economist at audit firm RSM.
Q2’21 US GDP: The long-awaited pivot in demand for services began in Q2 2021. Demand for services grew 12%, while US household consumption was supported by an increase of 9.9% expenditure on durable goods and 12.6% on non-durable goods.
– Joseph Brusuelas (@joebrusuelas) July 29, 2021
As consumers increased spending in the spring, gross private domestic investment – a key driver of economic productivity – fell at an annualized rate of 3.5% in the second quarter, falling deeper from the decline in 2.3% of the first quarter.
Investment in residential and non-residential buildings fell at annualized rates of 9.8% and 8% each, likely due to soaring prices for building materials, but growth in investment in equipment and intellectual property remained at double-digit rates in the second quarter.
Biden administration officials and Democratic lawmakers credited the president’s plans to end the pandemic and stimulate the economy to much of the second-quarter strength, arguing that growth exceeded expected pace before Biden does not enact the massive stimulus bill.
“Here is clear evidence that gunshots and checks in pockets helped make it happen. Check out this pre-political forecast from last year versus the actual results of this morning’s report,” he wrote. Jared bernsteinJared Bernstein Ponzi deficit schemes meet cold fusion Economic growth reached an annual rate of 6.5% in the second quarter., member of the White House Council of Economic Advisers (CEA), on Twitter.
Real GDP in 21Q2 is not only ahead of the pre-pandemic peak. Here is clear evidence that gunshots and checks in pockets helped make it happen. Check out these pre-political forecasts from last year versus the actual results of this morning’s report: pic.twitter.com/bsbdsvxdJg
– Jared Bernstein (@ econjared46) July 29, 2021
Even so, Republican lawmakers will likely blame Biden for the below-expectation second quarter growth and the high inflation that came with it.
The personal consumption expenditure price index (PCE), the Federal Reserve’s preferred inflation indicator, rose at an annualized rate of 6.4% in the second quarter, compared to 3.8% in the first. The PCE price index minus food and energy prices, which are more volatile, rose 6.1% on an annualized basis after rising 2.7% in the previous quarter.
Commodity prices rose sharply in early 2021 as producers struggle to meet growing demand and tackle an obstacle course of shortages and supply chain bottlenecks. While inflation was destined to rise after the prices plummeted in 2020, the current pace of price increases has far exceeded economists’ expectations and has alarmed many consumers.
Republicans seized on inflation fears as they attempt to regain control of Congress in 2022 and tackle Biden pressure for an estimated $ 3.5 trillion infrastructure and social services bill in addition to the bipartisan framework currently underway in the Senate.
“As spending returns to pre-pandemic trends, rising inflation means Americans are getting less for their money as workers, businesses and supply chains struggle to meet the demand. These issues are best addressed by the private sector, not by additional stimulus, and I am confident in the ability of innovative Americans to address these challenges in the months to come, ”Sen said. Mike leeMichael (Mike) Shumway LeeOn The Money: Senate Talks to Swiftly Pass Infrastructure Bill | CBO says bill would add $ 6 billion to debt in 10 years CBO says bipartisan infrastructure bill would add $ 6 billion to deficit over 10 years Senate in talks to swiftly pass bill of infrastructure law PLUS (R-Utah), vice-chairman of the Joint Economic Committee.
Many economists, including Fed Chairman Jerome Powell, say price growth will subside once several pandemic-related supply issues are eliminated.
“If you look at the most recent inflation report, what you see is that it was significantly higher than expected, but basically all of the overshoots can be tied to a handful of categories, and that’s n It’s not the kind of inflation that spreads. across the economy, ”Powell told reporters Wednesday.
“These are new, used and rental cars. It’s plane tickets. It’s hotels. It’s two or three other things. And each of these has a story attached to it that is really about reopening the economy. “
Updated at 10:22 a.m.