The US economy grew at an annual rate of 6.5% in the second quarter

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In terms of real gross domestic product – the broadest measure of economic activity – the economy has now recovered and become larger than its waist before pandemic.
Earlier this month, the National Bureau of Economic Research named the pandemic recession as the shortest on record, lasting just two months: March and April 2020.

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.

It was also little changed from the first quarter when the economy grew at an annual rate of 6.3%.
Nonetheless, it is the biggest growth jump since the country returned in the third quarter of 2020 after the recession triggered by the lockdown.

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.

The price increases are rampant. But the Federal Reserve continued to characterize the spike in inflation as temporary during Wednesday’s monetary policy update, with President Jerome Powell saying the extreme price hikes were limited to a few areas particularly affected by the pandemic.

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

Economists are starting to lower their GDP forecasts for the year in the face of the lower than expected growth rate in the second quarter and the increase in Covid infections thanks to the Delta variant.
Goldman Sachs (SG) cut its outlook earlier this week, saying consumer spending is still too slow.

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 spread of the Delta variant prompted a review of the Centers for Disease Control and Prevention’s mask recommendations earlier this week.

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.


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