The fast-spreading Delta strain of coronavirus depressed consumer spending in the third quarter of the year, causing US economic growth to stall considerably.
In the three months to September, the economy grew at an annualized pace of barely 2 per cent, compared to 6.7 per cent in the preceding quarter.
This slowdown occurred at a time when the United States was dealing with supply chain challenges, increased inflation, and new Covid-19 limits in some areas.
However, some experts believe growth will resume because of decreasing Covid-19 infection rates.
The growth rate was 0.5 per cent on a non-annualized basis.
During the third quarter, the Commerce Department said, a “resurgence of Covid-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country”.
It added that loans to businesses during the pandemic, subsidies to state and local governments, and social benefits to households were all reduced during the quarter. During the quarter, there was a 26 per cent decline in sales of high-priced manufactured items, among other things. Sales of new cars, in particular, declined substantially as costs rose due to a scarcity of semiconductors.
On the other hand, there was also a slowdown in growth in the US services sector to 7.9 per cent as consumers spent less on dining out and hotel stays.
As a result of the pandemic, the US economy had contracted substantially in 2020, but it surged back in the first half of this year. Since then, however, an increase of Delta variant caused Covid-19 infections, which has been exacerbated by low vaccination rates, has slowed down economic recovery.
A disappointing 194,000 jobs were added to the economy in September, even as the economy was being dragged down by the Delta variant of the coronavirus. Economists predicted the economy to add 500,000 jobs kin the month which is close to the monthly average for 2021.
At the same time, the rate of inflation touched 5.4 per cent in September as global supply systems were unable to completely satiate the increasing consumer demand with the economy reopening more.
The Federal Reserve has stated that it has no urgent plans to hike interest rates to calm things down and believes that the high prices are just temporary. The Fed however does intend to start reducing its pandemic-era economic boost from later this year, which some fear may be too soon.
Richard Flynn, managing director at Charles Schwab UK, said: “Today’s disappointing GDP data will increase investor concerns about the strength of the US economy. Risk has undoubtedly risen for investors, as there are now more questions – including about fiscal and monetary policy – than there are answers.”
However, according to Willem Sels, chief investment officer of Global Private Banking and Wealth at HSBC, the slowdown is expected to be temporary.
“As companies rebuild their very low inventories, demand should remain strong, and activity should eventually pick up,” he added.
“We also think consumption will rebound when consumers grow more confident, especially as many households have managed to save more during the lockdown and may want to spend ahead of the holiday season.”
(Adapted from FT.com)