US economy slows in third quarter

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US economy slows in third quarter

Economic growth slowed sharply in the summer as supply-chain disruptions and a resurgence pandemic restricted activity in shops, factories and restaurants.

The Commerce Department said on Thursday that GDP adjusted for inflation rose 0.5 percent in the third quarter. It was down 1.6 percent in the second quarter, defying earlier expectations that the recovery would accelerate as the year went on.

On an annual basis, GDP grew 2 percent in the third quarter, up from 6.7 percent in the second quarter.

The recession was partly a result of the spread of the Delta version of the coronavirus, which has caused many Americans to pull back on travel, restaurant dining and other personal activities. Recent data suggests people have returned to those activities as virus cases have fallen, and most economists expect fairly rapid growth in the last three months of the year.

But another big restriction on growth could be slowing down. The pandemic has affected supply chains across the world, even as demand for many products has increased. The resulting backup has made it harder for US stores and factories to get the products and parts they need. Economists initially expected the disruption to be short-lived, but many now expect the issues to persist into next year.

Many businesses are also struggling to find enough workers to make, sell and distribute products – another supply crunch that is holding back growth for longer than economists expected.

“The economy doesn’t have a demand problem,” said Ben Herzon, executive director of forecasting firm IHS Markit. “It has a supply problem.”

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In some cases, those supply issues result in delayed delivery, low selection and empty shelves. In other cases, they are resulting in higher prices: Inflation peaked last spring and remains high. In government data, faster price increases are the result of slower inflation-adjusted growth: consumers are spending as much, but receiving less in return.

The combination of rapid inflation and slow growth is causing headaches for the Federal Reserve, which has indicated it expects to withdraw support for the economy early next month. It’s also a political problem for President Biden as he tries to push his long-term economic agenda through Congress.

Nevertheless, the economy is in much better shape than most forecasts for the past year. GDP returned to its pre-pandemic levels in the second quarter, although it has not reached a level where the pandemic would never have occurred. Government aid, along with reduced spending during the pandemic, has left Americans flush with cash, which should support spending for the rest of the year.

“The disruption in the supply chain together with Delta conspired to halt growth,” said Constance L. Hunter, chief economist at accounting firm KPMG. “It’s a speed bump, not a deceleration.”

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