US GDP slowed sharply in the third quarter but a significant recovery is expected in the fourth quarter

US GDP slowed sharply in the third quarter but a significant recovery is expected in the fourth quarter

Washington The US economy slowed to a modest annual rate of 2.1% in the July-September quarter according to the government’s second reading of the data, slightly better than its first estimate. But economists expect a strong rebound in the current quarter as long as rising inflation and the recent spike in COVID cases do not hamper activity.

The Commerce Department reported Wednesday that the increase in GDP, the economy’s total output of goods and services, was up from an initial estimate of 2% for the third quarter. But the adjustment is still well short of the strong gains of 6.3% in the first quarter of this year and 6.7% in the second.

The slight increase from preliminary GDP estimates a month ago reflected a slightly better performance in consumer spending, which grew at a still-weak 1.7% rate in the third quarter, compared to a 12% increase in the April-June quarter. The contribution to GDP from business restocking has also been revised upwards.

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The poor economic performance in the summer reflected a significant slowdown in consumer spending as the sudden rise in COVID-19 cases from the delta variant caused consumers to become more cautious and supply chains faltered making items such as new cars difficult to obtain and also contributed to the explosion of inflation to unprecedented levels. It has been going on for three decades.

While COVID cases in recent weeks have begun to rise again in many parts of the country, economists do not believe the recent increase will be enough to discourage consumer spending, which accounts for 70% of economic activity.

The outlook is that the economy in the current October-December quarter could grow at the strongest pace this year, with some economists predicting that gross domestic product could rise to an average of 8% in the fourth quarter.

For the full year, the economy is expected to grow about 5.5%, the best performance since 1984 and a big improvement from last year when the economy contracted 3.4%. This was the largest annual decline since a decline of 11.6% in 1946. When the nation was demobilized after World War II.

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Gregory Daco, chief US economist at Oxford Economics, wrote in a note to clients. Daco expects GDP to rebound in the current October-December period to a growth rate of 5.6%.

So far, this year’s improvement in the economy has not boosted President Joe Biden’s approval ratings because the United States, with one of the more rapidly recovering economies, is also caught up in global supply chain stresses that are driving prices higher for everything starting with new. Cars and gasoline for the cost of food and airline tickets.

Biden this week appointed Federal Reserve Chairman Jerome Powell to a second four-year term to head the central bank. Powell and other Fed officials insisted earlier this year that the price talk was caused by temporary factors, such as faltering supply chains.

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However, the central bank recently stressed that if the rate increase continues, it will be ready to start raising interest rates sooner than expected to slow growth as a way to ease inflationary pressures.

Mark Zandi, chief economist at Moody’s Analytics, said he now expects the Fed to boost benchmark interest rates twice next year in September and December. These price increases will translate into higher borrowing costs for consumers and businesses.

But analysts do not believe that expected quarter-point interest rate increases will be enough to derail the recovery. They are also optimistic that the global pandemic will be less of a hindrance next year.

“I think every new wave of COVID cases will be less disruptive to the economy because more people are getting vaccinated,” Zandi said.

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