US economic growth slowed sharply over the summer as supply chain bottlenecks and the resurgent pandemic restrained activity at shops, factories and restaurants. Gross domestic product, adjusted for inflation, grew 0.5 per cent in the third quarter, the US commerce department said on Thursday. That was down from 1.6 per cent in the second quarter, dashing earlier hopes that the recovery would accelerate as the year went on.
Growth in consumer spending, which has helped drive the recovery, slowed to 0.4 per cent, from 2.9 per cent in the second quarter, and spending on goods fell sharply. Business investment also slowed.
On an annualised basis, GDP rose 2 per cent in the third quarter, down from 6.7 per cent in the second quarter. The slowdown was partly a result of the spread of the Delta variant of the coronavirus, which led many Americans to pull back on travel, restaurant meals and other in-person activities. More recent data suggests that people have returned to those activities as virus cases have fallen, and most economists expect significantly faster growth in the final three months of the year.
But another major restriction on growth may be slower to recede. The pandemic has snarled supply chains around the world, even as demand for many products has surged. The resulting backups have made it hard for US stores and factories to get the products and parts they need. Economists initially expected the disruptions to be short-lived, but many now expect the issues to linger into next year.
Many businesses are also struggling to find enough workers to make, sell and deliver products – another supply shortage that is holding back growth longer than economists expected. “The economy doesn’t have a demand problem,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “It has a supply problem.”
In some cases, those supply issues are resulting in delayed deliveries, reduced selection and empty shelves. In other cases, they are resulting in higher prices: inflation soared last spring and has remained elevated. Consumer prices rose 1.3 per cent in the third quarter, slightly slower than in the prior quarter, but still well above the prepandemic rate. Prices were up 4.3 per cent from a year earlier.
In government statistics, faster price increases result in slower inflation-adjusted growth: consumers are spending just as much, but getting less in return. The combination of faster inflation and slower growth is causing headaches for the Federal Reserve, which has indicated it expects to be pulling back support for the economy as early as next month. It is also a political problem for US president Joe Biden as he tries to push his longer-term economic agenda through Congress.
Still, the economy is in much better shape than forecasters expected for most of last year. GDP returned to its prepandemic level in the second quarter, although it has not caught up to where it would be if the pandemic had never occurred. Government aid, along with reduced spending during the pandemic, has left Americans flush with cash, which should support spending for the rest of the year.
"Supply chain disruptions together with Delta conspired to hold back growth," said Constance Hunter, chief economist for KPMG, the accounting firm. "It's a speed bump not a slowdown." – This article originally appeared in The New York Times