Delta wave slowed US economic growth in third quarter

Washington (AFP) – The US economic expansion slowed dramatically in the third quarter to an annual rate of just two percent as consumer spending was choked by resurgent Covid-19 infections, the government said Thursday.


The spread of the Delta variant of the virus over the summer combined with renewed restrictions and global supply snags including shortages of workers and computer chips took a toll on the economy, cutting growth from the 6.7 percent pace in the prior quarter.

The impact on the world's largest economy was most notable in the more than 26 percent collapse in purchases of big-ticket manufactured goods in the latest three months, the Commerce Department reported.

That drop was partly offset by the 7.9 percent increase in spending on services like travel and hotels, though that was slower than the gain in the prior quarter, according to the data.

The "resurgence of Covid-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country," the report said.

The US government has supported the economy with massive stimulus measures including the $2 trillion American Rescue Plan enacted in March, but much of that relief including expanded unemployment benefits have lapsed.

"Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments and social benefits to households all decreased," the Commerce Department said.

Despite the worse-than-expected result in the latest quarter, economists are confident growth will accelerate at the end of 2021.

"Growth was crushed by consumption slowing" as stimulus payments ended, said Ian Shepherdson of Pantheon Macroeconomics

"The Delta wave and the chip shortage -- the latter subtracted nearly three percentage points from consumption growth -- made things much worse," he said in an analysis.

However Shepherdson predicted the fourth quarter "will be very different; spending on services is already rebounding as Delta subsides."

Inflation still high

The hot real estate market that has seen home sales and prices surging during the pandemic showed signs of cooling as residential investment dropped nearly eight percent, according to the data.

Mike Fratantoni, chief economist of the Mortgage Bankers Association, attributed that sag to "the supply chain issues that continue to bedevil the economy" including "builders' ongoing struggles to obtain key construction inputs."

Like other economists, Fratantoni said the downdrift in spending is not due to lack of demand.

"Consumers are willing and able to spend, but the goods are just not available," he said.

There was some good news as inflation measured by the personal consumption expenditures (PCE) price index retreated in the July-September period, but remained at a still-high 5.3 percent compared to 6.5 percent in the second quarter.

If the volatile food and energy prices that have been spiking amid surging demand and supply bottlenecks are excluded, the closely watched inflation gauge increased only 4.5 percent.

Rising prices -- including oil pushing above $80 a barrel for the first time in years -- have raised fears inflation could spiral out of control, which would compel the Federal Reserve and other central banks to hike interest rates and slow growth.

Inflation is expected to continue to rise until the pandemic-inflicted bottlenecks are resolved worldwide, sometime in 2022.

The White House Council of Economic Advisers put a positive spin on the report, tweeting that while "the recovery from the pandemic will not be linear," the United States "continues to lead the G7 economies in its pandemic recovery."

In a reminder of the damage done by the pandemic downturn last year, the data said the economy has grown only 1.4 percent since the final three months of 2019, before Covid-19 struck.

GDP growth compared to the second quarter of this year edged up 0.5 percent, less than one-third the pace of the prior three months, according to the report.