US Economy Slows in Third Quarter


Economic growth slowed sharply over the summer as supply chain bottlenecks and a resurgent pandemic curtailed activity in shops, factories and restaurants.

Gross domestic product, adjusted for inflation, grew 0.5 percent in the third quarter, the Commerce Department said on Thursday. That fell from 1.6 percent in the second quarter and dashed earlier hopes that the recovery will accelerate as the year goes on.

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

The slowdown was in part a result of the spread of the Delta variant of the coronavirus, which has caused many Americans to withdraw from travel, restaurant meals and other in-person activities. More recent data shows that people are returning to these activities as cases of the virus dwindle, and most economists expect significantly faster growth in the last three months of the year.

But another major constraint on growth may be slower to pull back. The pandemic has battered supply chains around the world as demand for many products has increased. The resulting backups made it harder for US stores and factories to get the products and parts they needed. Economists initially expected the cuts to be short-lived, but many now expect the problems to continue into next year.

Many businesses also struggling to find enough workers making, selling and delivering products – another supply shortage that’s holding growth longer than economists expect.

“The economy has no demand problem,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “There is a supply problem”

In some cases, these supply issues result in delayed deliveries, reduced selection and empty shelves. In other cases, they cause higher prices: Inflation rose and remained high last spring. In government statistics, faster price increases result in slower inflation-adjusted growth: Consumers spend the same amount, but get less in return.

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

Still, the economy is doing much better than forecasters had expected for most of last year. Gross domestic product returned to pre-pandemic levels in the second quarter, but did not catch up to where it would have been if the pandemic had never occurred. Government aid, along with dwindling spending during the pandemic, has filled Americans with cash that should support spending for the rest of the year.

“Supply chain cuts with Delta have conspired to halt growth,” said Constance L. Hunter, chief economist at accounting firm KPMG. “It’s not a slowdown, it’s a speed bump.”



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