Economic growth rate slows to 2% on a sharp slowdown in consumer spending

The Commerce Department reports that the U.S. economic growth was only 2% for the third quarter. It is its lowest gain since the pandemic-era recovery.

The department reports that the Gross Domestic Product, which is the sum of all products and services, increased at 2.0% per annum in the Third Quarter. first estimate released Thursday2.8% Dow Jones surveyors expected a reading of 2.8%.

This was the slowest increase in GDP since the plunge of 31.2% during the second quarter 2020. Covid-19It turned into a worldwide pandemic, which led to a serious economic downturn that left millions of people without jobs and a halt in activity throughout the country.

Gains were held back by declines in fixed investments and spending in federal government. A surge in U.S. trade indebtedness, which reached a record $73.3 billion in August, also contributed to the slowdown.

These declines were mostly countered by an increase in private inventory investments, which was accompanied only by a modest gain in personal consumption.

Consumption, which is 69%, of the U.S. $23.2 trillion economy, rose at only 1.6% for the last quarter after increasing 12% in Q2.

In Q2, the 9.2% fall in spending on goods was due to a 26.2% dip in spends on long-lasting goods such as appliances, autos, and services, which increased 7.9%.

This was due to a 0.7% drop in disposable income. Q2 saw a 25.7% decrease in personal income. From 10.5%, the personal savings rate dropped to 8.9%.

According to the Commerce Department, the 4.7% drop in federal spending was caused by a stop to services and processing by Paycheck Protection Program. The Paycheck Protection Program is a panademic-era program that provides bridge financing to companies affected by the shutdown.

Paul Ashworth (chief U.S. economist, Capital Economics) stated that “Overall this is a huge disappointment” given the consensus forecast for the July quarter of 7.0% growth and our bearish 3.5% forecast. “We expect something of a rebound in the final quarter of this year — if only because motor vehicles won’t be such a drag and any negative impact from Delta should be reversed.”

Separately, the total number of unemployment claims for the week ending Oct. 23 was 281,000. This is a low figure in the current pandemic and well above the 289,000. This was a decline from 291,000 the week before. Continued claims declined by 237,000 to $224 Million, while those who are receiving benefits through all programs decreased by 448.386 to 2.83million.

Stock market futures remained higher after the reportWhile government bond yields have also increased.

In the period July to September, there was a significant clogging in the supply chain of the country. This in turn slowed a recovery that started in April 2020. It came after the most recent but still steepest recession in U.S history.

The bottleneck was caused by shortages in labor force and high demand for services over goods. It is unlikely that it will ease before the holidays.

Economists expect that the U.S. will rebound in the fourth quarter despite the weakness of Q3. They also anticipate continued growth through 2022, despite the weak performance during the third quarter.

The Q3 numbers were also affected by the Covid Delta variant’s summertime rise, which has reverted itself across much of the country. A surge in consumer activity is possible, especially in vital services. This could help fuel late-year growth.

According to Dawit Kebede (senior economist, Credit Union National Association), “As Delta cases continue subside, there will likely be more growth during the fourth quarter as consumers are more willing to pay for services that involve in-person interactions.” However, the supply chain issues will probably continue into next year, making it more difficult to fulfill increased consumer demand.

Despite companies noticing problems with supply chain issues during earnings season, many customers will pay more. Inflation is at an all-time high, and most economists agree that it will continue to rise. Federal Reserve policymakers expect inflation to slow down in the next year.

The data on Thursday indicated that the rate of inflation increase had slowed at most.

The Fed’s preferred measure of inflation is core personal consumption spending, which does not include food or energy, increased 4.5% in Q3. This was a slight decrease from the 2.1% rise but well ahead of the pre-Covid rate. From 6.5%, the prior quarter’s headline PCE price Index increased by 5.3%.

Correction: Personal savings rates declined from 10.5% to 8.9%. In an earlier version, the change was misunderstood.

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