US GDP slowed sharply in Q3 but big rebound expected in Q4

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The US economy slowed to a modest annual rate of 2.1% in the October-December quarter, slightly better than previously reported

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WASHINGTON – The US economy slowed to a modest annual rate of 2.1% in the October-December quarter, slightly better than its first estimate, according to a second reading of government data. But economists are predicting a solid rebound in the current quarter, unless rising inflation and the recent rise in COVID cases derail activity.

The Commerce Department reported Wednesday that growth in GDP, the economy’s aggregate output of goods and services, is up from an initial estimate of 2% for the third quarter. But the revision was still well below solid gains of 6.3 per cent in the first quarter of this year and 6.7 per cent in the second quarter.

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The small growth from initial GDP estimates from a month ago showed a slightly outperformance for consumer spending, which grew at 1.7% in the third quarter, compared to a 12% increase in the April-June quarter. The contribution to GDP from business inventory restocking was also revised up.

The economy’s weak summer performance reflected a major slowdown in consumer spending, as a spike in COVID-19 cases from Delta made consumers more alert and poor supply chains made it difficult to get items like new cars and even in bursts. has contributed. Inflation at levels not seen in three decades.

While COVID cases have started to rise again in many parts of the country in recent weeks, economists do not think the latest increase will be enough to dampen consumer spending, which accounts for 70% of economic activity.

The economy is expected to grow at the fastest pace this year in the current October-December quarter, possibly above 8%.

For the full year, the economy is expected to grow at around 5.5%, the best performance since 1984 and a major improvement from last year, when the economy shrank 3.4% when the country was battling the lockdown .

So far, the recovery in the economy this year has not boosted President Joe Biden’s approval ratings as the US, with one of the fastest-recovering economies, is also caught in a global supply chain squeeze, which is fueled by new Raising prices for everything. Car and gasoline for the cost of food and airline tickets.

Biden this week nominated Federal Reserve Chairman Jerome Powell to head the central bank for a second four-year term. Powell and other Fed officials insisted earlier in the year that the spoke in price was being caused by temporary factors, such as snarled supply chains.

However, recently the central bank has insisted it is ready to start raising interest rates sooner than expected if prices continue to rise, as a way of easing inflationary pressures. Will happen.

Mark Zandi, chief economist at Moody’s Analytics, said he now expects the Fed to raise its benchmark interest twice in September and December next year. Those rate increases will translate into higher borrowing costs for consumers and businesses.

But analysts don’t believe the expected two quarter-point rate hike will be enough to derail the recovery. They are also hopeful that next year’s global pandemic will be no less.

“I think each new wave of COVID cases will be less disruptive to the economy because more people are getting vaccinated,” Zandi said.

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