US economic growth slowed considerably in the third quarter due to supply-chain disruptions, a resurgence of Covid-19 and slower spending on consumer goods.
The world’s largest economy expanded 2 per cent on an annualised basis in the three months to the end of September, according to data from the commerce department on Thursday, marking the weakest quarterly growth since the coronavirus recession last year.
That was below expectations for a 2.7 per cent rise, according to a Refinitiv poll of economists, and represented a slowdown from the 6.7 per cent pace in the second quarter.
Gross domestic product rose 0.5 per cent compared with the previous quarter, based on a measure used by other major economies.
“A resurgence of Covid infections cut the summer rebound in half while growing supply chain issues led to higher inflation and curbed demand,” said Gregory Daco, economist at Oxford Economics.
Flagging consumption was a key culprit for the economy’s latest soft patch, as personal consumption rose just 1.6 per cent, slower than the 12 per cent rise the previous quarter.
Spending on long-lasting goods plunged 26.2 per cent, driven by a drop-off in auto sales, which have been hampered by semiconductor shortages. However, the report highlighted the continued shift from spending on goods to services, which increased 7.9 per cent in the third quarter, although that was lower than the 11.5 per cent increase in the preceding quarter.
Millions of US households received stimulus cheques from the federal government between mid-March and early April, which helped underpin the higher spending that drove economic growth during the spring as national Covid-19 cases began to ease and states began to roll back their pandemic restrictions.
Decreases in residential fixed investment, exports and federal spending weighed on growth. Federal spending declined 4.7 per cent in the third quarter — the second consecutive quarterly drop — though overall government spending rose 0.8 per cent.
Supply-chain disruptions and shortages of almost everything from semiconductors to workers, caused in large part by the pandemic, represented other challenges to growth. A separate report on Thursday showed the number of Americans filing for unemployment benefits fell to a fresh pandemic-era low as businesses struggled to hire workers.
These factors have also been feeding into rising inflation, which in turn poses a risk to consumer spending and confidence by the erosion of purchasing power.
The US consumer price index rose 5.4 per cent in September from a year earlier, hovering around its highest level since 2008. The core PCE price index, which strips out volatile food and energy costs and is closely watched by the Federal Reserve, increased 4.5 per cent from the previous quarter, compared with a 6.1 per cent rise in the second quarter.
Fed chair Jay Powell has taken the view that inflationary pressures will ease over time, but has acknowledged that the severity of supply-chain disruptions have exacerbated price pressures and caught policymakers by surprise.
At the Fed’s most recent meeting in September, Powell indicated that the US economy would probably be on a firm enough footing to allow the central bank to begin reducing the scale of its $120bn-a-month asset purchase programme in November. Some Fed officials see the possibility of raising interest rates from their current rock-bottom level as early as next year.
Several economists think the overall slowdown in economic growth will probably be temporary, even though inflationary pressures may stick around a bit longer.
“High frequency consumer activity numbers such as flights, restaurant dining and hotel stays have turned higher through mid-September into October as the Delta wave subsided,” said James Knightley, economist at ING, adding that he is “confident that the fourth quarter will be much better.”
US stocks were higher at the start of trading in New York on Thursday. Treasury yields edged up with the 10-year yield up 0.03 percentage points to 1.561 per cent.