Hampered by rising COVID-19 cases and persistent supply shortages, the U.S. economy slowed sharply to a 2% annual growth rate in the July-September period, 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 gross domestic product — its total output of goods and services — declined from robust growth rates of 6.7% in the second quarter and 6.3% in the first quarter.
The 2% annual growth last quarter fell below expectations and would have been even weaker if not for a sharp increase 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 about 70% of overall economic activity, slowed to an annual growth rate of just 1.6% after having surged at a 12% rate in the previous quarter.
The government’s estimate Thursday was even lower than economists’ forecasts for a significant slowdown in growth. The effects of the delta variant in keeping some people away from restaurants, retail shops and entertainment venues was a key drag on growth.
In September, America’s employers added just 194,000 jobs, a second straight sluggish monthly gain and evidence that the pandemic was keeping its grip on the economy, with many companies struggling to fill millions of open jobs.
“The delta wave of the pandemic did a lot of damage — it caused consumer to turn more cautious,” said Mark Zandi, chief economist at Moody’s Analytics. “The virus surge scrambled global supply chains and disrupted production in a lot of industries and also created havoc in the job market.”
But in recent weeks, viral cases have steadily fallen, and many economists say they think the economy is accelerating again. Zandi is predicting 6% annual growth for the current fourth quarter, and some economists foresee an even stronger rebound, depending on whether viral cases continue to fade and supply shortages begin to ease.
For 2021 as a whole, economists generally expect growth to amount to around 5.5%. That would be the highest calendar-year expansion since the mid-1980s and a sharp improvement from the 3.4% plunge in GDP in the recession year of 2020. It would also easily exceed the sub-3% annual economic growth rates that prevailed in the years before the pandemic recession.