The U.S. GDP expanded by a feeble 2 percent in this year’s third quarter, the federal Bureau of Economic Analysis reported on 28 October.
The growth rate was the slowest for any quarter since 2019’s final three months, when the economy expanded by only 1.9 percent, a figure indicating the U.S. economy was slumping even before the COVID virus arrived.
The new figure also lagged far below the 2.8 percent to 3.2 percent that had been forecast by economists and was less than a third of the 6.7 percent achieved in the second quarter.
The economy was battered by a confluence of events, including a raging Delta virus, supply chain gridlock, a shortage of materials and workers, and higher prices.
Some workers remained off the job rather than submit to employers’ demands to wear masks, show proof of vaccination, or undergo COVID testing, further slowing productivity.
Also, the vaccination rate has lagged, emergency federal support payments have largely ended, and the initial post-2020 surge in pent-up consumer demand has largely been spent.
August’s near-record $73.3-billion trade deficit also hampered growth.
Workers’ total compensation was up 1.3 percent, ahead of the 0.9 percent analysts expected and the fastest climb since 2002.
Incomes rose even as government rescue subsidies ended, but higher prices for food, fuel, and other necessities left Americans with 0.7 percent less discretionary income, a reduction of $29.7 billion.
The core consumer price index, which excludes food and energy, rose 4.1 percent during the period.
The third-quarter personal savings rate slumped to 8.9 percent from the second quarter’s 10.5-percent rate.
Consumer spending also slowed, rising just 1.6 percent compared to 12 percent in the second quarter.
Spending on merchandise slid 9.2 percent, led by a 26.2-percent crash in outlays for durable goods (see related story in this issue).
Outlays for vehicles and parts plunged 54 percent in July through September, the U.S. commerce department reported, as chip shortages and transport logjams slowed production and delivery.
In contrast, spending on services jumped 7.9 percent in the period, although still below the second quarter’s 11.5-percent boost.
The number of diners seated in restaurants was down 4 percent compared to the same period in 2019, data service OpenTable said.
Federal government spending dropped 4.7 percent as the Paycheck Protection Program and other emergency COVID-era support programs wound down.
Economists widely believe holiday spending will strengthen the economy’s fourth quarter, with GDP gradually expanding through the new year, The Wall Street Journal said.
Another positive sign: business investment is increasing and employers are hiring and retaining workers, reducing layoffs and unemployment claims, according to the WSJ.
TREND FORECAST: Strong holiday spending will give the economy a boost but not as much as in typical years. Indeed, the dollar volume will go up, but the amount of products purchased will go down since the cost of purchasing them will go up. Higher inflation will, and is, robbing people of their purchasing power.
The economy will continue to grow by fits and starts through the first half of 2022.
While there will be shortages of products for the holiday season, it will not crimp sales. And, many of the supply-line kinks and blocks will be resolved. However, the global economy still will be dealing with shortages and higher costs of materials, which will restrain growth. And as we forecast, when interest rates go up, the economy and equities will go down.