The report from the Commerce Department estimated that the nation’s GDP dropped from 6.7% in the second quarter and 6.3% in the first quarter
Hampered by increasing coronavirus cases and persistent supply shortages, the U.S. economy slowed sharply to an annual growth rate of 2% in the third quarter (July-September), the weakest quarterly expansion since the recovery from the pandemic recession began last year.
Thursday’s report from the Commerce Department estimated that the nation’s GDP (Gross Domestic Product) dropped from robust growth rates of 6.7% in the second quarter and 6.3% in the first quarter, gains that had been fuelled by federal stimulus package.
The 2% annual growth last quarter dropped below expectations and would have been even weaker if not for a rise in restocking by businesses, which added whatever supplies they could obtain. Such inventory rebuilding added 2.1 percentage points to the quarter’s modest expansion.
By contrast, consumer spending, which fuels nearly 70% of overall economic activity, slowed to an annual growth rate of just 1.6% after having soared at a rate of 12% in the previous quarter.
Economists remain hopeful for a rebound in the current October-December period, with confirmed coronavirus cases dropping, vaccination rates rising and more Americans venturing out to spend money. Many economists think GDP will rebound at a solid annual growth rate of at least 4% this quarter.
The key story right now is the improving health situation, said Gregory Daco, chief U.S. economist at Oxford Economics. People are feeling a lot more at ease about moving about.
Thursday’s report from the government, the first of three estimates of last quarter’s GDP, showed widespread weakness. In consumer spending, purchases of durable goods, like autos and appliances, declined at a sizable rate of 26.2%. Sales of clothing and other nondurable goods slowed to a modest annual gain of 2.6%. And purchases of services increased at a rate of 7.9%, down from an 11.5% annual rise in the previous quarter.
Businesses, too, held back. Corporate investment in equipment and plants slowed to a growth rate of 1.8%, after a 9.2% annual increase in the April-June quarter. Residential construction declined at a rate of 7.7% after an even sharper 11.7% drop in the previous quarter.
Last quarter, exports declined at an annual rate of 2.5% while imports increased at a rate of 6.1%, a surge that has contributed to clogged ports. The gap between exports and imports subtracted 1.1 percentage points from last quarter’s annual growth.
The inflation data tied to Thursday’s GDP report showed consumer price increases at a still elevated annual rate of 4.5% last quarter but down from 6.1% in the second quarter.
