Economic growth slows to 2% as supply chain issues affect

The Commerce Department reported Thursday that the U.S. economy grew at a 2 percent rate in the third quarter, its slowest gain in the pandemic-era recovery, as supply chain problems and a marked slowdown in consumer spending hampered expansion.

Gross domestic product, which is the sum of all goods and services produced, grew at an annual rate of 2 percent in the third quarter, according to the administration’s first estimate released Thursday. Economists surveyed by Dow Jones were looking for a reading of 2.8 percent.

It represented the slowest GDP gain since a 31.2 percent drop in the second quarter of 2020, which included the period during which Covid-19 turned into a global pandemic that led to a severe economic shutdown that sent tens of millions into unemployment lines and put an end to unemployment. Choke on activity across the country.

“It is not at all surprising that the GDP report was significantly lower than what was reported in the second quarter,” said Steve Rick, chief economist at CUNA Mutual Group. “The US economy remains extremely volatile as we grapple with the global supply chain crisis, rising inflation and labor market stagnation. The supply chain crisis and ongoing pandemic have slashed GDP growth rates around the world.”

A drop in fixed residential investment and federal government spending helped cap the gains, as did a rise in the US trade deficit, which widened to nearly $73.3 billion in August.

Consumer spending, which makes up 69 percent of the $23.2 trillion US economy, increased at a pace of just 1.6 percent recently, after rising 12 percent in the second quarter.

Spending on goods fell 9.2 percent, led by a 26.2 percent decrease in spending on appliances and cars, while spending on services increased by 7.9 percent, down from the pace of 11.5 percent in the second quarter.

Federal spending fell 4.7 percent, which the Commerce Department said was due to the halt in services and processing for the Paycheck Protection Program, a pandemic-era initiative aimed at providing bridging funding for businesses affected by the shutdown.

In a separate economic report, jobless claims totaled 281,000 for the week ending October 23, another pandemic-era low and better than the estimate of 289,000. The total is down from the previous week of 291,000.

The July-September period saw a major blockage in the country’s supply chain, which in turn weakened the recovery that began in April 2020 after the shortest and most severe recession in US history.

The labor shortage and the increasing demand for goods for services have contributed to the bottleneck that is not expected to ease until after the holiday season.

Despite the weakness in the third quarter, economists largely expect the US to rebound again in the fourth quarter and continue to grow through 2022.

Another important factor for the Q3 number is the summer rise of the Covid delta variant, a situation that has inverted itself across much of the country. Consumer activity, particularly in the vital services part of the economy, appears to have rebounded and could fuel the growth spurt late in the year.

“As Delta issues continue to subside, there may be more growth in the fourth quarter as consumers will be more willing to spend on services that include in-person interactions,” said Dawit Kebede, chief economist at the National Credit Union. However, supply chain challenges are likely to persist into the next year making it difficult to meet growing consumer demand.

During the current earnings season, companies have noticed issues with supply chains, but many customers say customers are willing to pay higher prices. That, in turn, has helped boost inflation, which is approaching a 30-year high and is also expected by most economists and federal policy makers to subside next year.

Thursday’s data indicated that the pace of inflation had at least taken a step back.

Core personal consumption expenditures, which excludes food and energy which is the preferred metric by which the Fed measures inflation, rose 4.5 percent, slowing from the 6.1 percent increase in the second quarter, but still well above the pre-Covid pace.

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