The U.S. economy hasn’t exactly fallen into a rut, but the U.S. may have just suffered its biggest hiccup since the coronavirus pandemic erupted in early 2020.
Gross domestic product, the sum of everything that goes on in the economy, likely grew in the third quarter at the slowest pace in a year and half, Wall Street predicts. Third quarter GDP data will be released next Thursday.
The nation’s economic growth is expected to be cut by more than half to a 3.1% annualized pace in the period covering July through September, according to economists polled by The Wall Street Journal. The U.S. expanded at a 6.7% annualized clip in the second quarter.
Other economic fortune tellers say even slower growth is in the cards. IHS Markit, the gold standard among Wall Street
forecasters, estimates GDP is on track to grow just 1.5%.
The Atlanta Federal Reserve’s GDPNow forecast is even weaker: 0.5%.
The big story was the surge in coronavirus cases tied to the delta variant during the third quarter.
Toward the end of the summer Americans went out less and traveled less to avoid catching the virus. That meant reduced spending at hotels, restaurants, theaters, vacation resorts and the like.
The result: Consumer spending, the biggest engine of the economy, may have grown a tepid 1% or less.
By contrast, spending soared by a 12% annual rate in the spring and 11.4% in the first three months of the year.
The delta variant wasn’t the only source of reduced spending. Massive government stimulus provided by the federal government had mostly dried up by the end of the third quarter. Huge stimulus payments to individuals and families boosted spending earlier in the year.
Even when consumers wanted to spend more, they sometimes couldn’t find enough products to buy because of persistent labor and supply shortages that are afflicting the economy.
Read: ‘My business faces a dire shortage of workers,’ owner tells Congress
Case in point: New cars and trucks.
A global shortage of computer chips has slowed production and sent prices soaring to record highs, as the U.S. experiences its worst bout of inflation in 30 years. Falling auto sales is another big contributor to reduced consumer spending.
Read: Inflation rises at 5.4% yearly pace in September and stays at 30-year high
“Delta, fiscal stimulus fading and supply constraints likely restrained U.S. GDP,” economists at TD said in note to clients.
Other factors that suppressed growth over the summer were record international trade deficits and flatlining home sales. Builders also can’t construct enough houses because of labor and material shortages.
There is some light at the end of the tunnel, however. The economy appeared to perk up in the first month of the fourth quarter as delta faded and Americans went back to their spending ways.
Read: Americans say they’ve lost confidence in the economy, but they’re spending like they won the lottery
Economists predict GDP will accelerate to 4.8% in the final three months of the year.
“There are all sorts of worries about inflation, supply chain snafus and labor shortages, but the economy continues to chug along quite solidly,” said Joel Naroff of Naroff Economic Advisors.
The recovery would be even faster, they say, if the labor shortages and supply bottlenecks eased soon. Yet those problems are expected to fester well into 2022.