Gross domestic product rose at an annualized rate of 2% following a 6.7% pace in the second quarter, the Commerce Department’s preliminary estimate showed Thursday.
The deceleration reflected a sharp slowdown in personal consumption, which rose only 1.6% after a rapid jump of 12% in the previous period. Shortages, transportation bottlenecks, rising prices and the delta variant of the coronavirus have weighed on spending on goods and services.
The median forecast from a Bloomberg survey of economists predicted a 2.6% increase in GDP. The S&P 500 opened higher, while the dollar fell and Treasury yields were little changed.
The latest data highlights how unprecedented supply constraints are holding back the US economy. Under-staffed and short of necessary equipment, producers are struggling to meet demand. Service providers, who are facing similar pressures, outperformed manufacturers in the quarter despite the resumption of infections.
While supply chain challenges are expected to persist through 2022, declining COVID-19 infections and high savings are expected to support higher household spending in the last three months of the year.
“Looking ahead, we expect a faster pace of growth in the fourth quarter thanks to a rebound in household spending, but with downside risk from supply chain disruptions and shortages that could be a constraint. for economic expansion over the next few months, ”Rubeela Farooqi, chief US economist of High Frequency Economics, said in a note.
Persistent supply constraints coupled with other reopening effects have also pushed up prices for a variety of products, raising concerns about the extent and duration of the recent spike in inflation.
The price index of personal consumption expenditure excluding food and energy costs, a measure of inflation closely followed by Federal Reserve officials, remained high, rising 4.5% in pace annualized in the last quarter after a 6.1% jump in the previous three months.
HOW COMPANIES SEE IT
- “We don’t see the commodity or the inflation environment slowing down in any way. – Monish Patolawala, CFO of 3M Co., October 26 earnings conference
- “In line with the overall market, we are experiencing inflationary pressures… Next year, we anticipate a more difficult inflationary environment. – General Electric Co. CFO Carolina Dybeck Happe, October 26, earnings conference call
- “I think the headwinds and rising distribution costs will definitely be with us in 2022.” – Kimberly-Clark Corp. CFO Maria Henry, October 25 earnings conference
- “On the cost side of the equation… we don’t see any significant improvement until 2022.” – John Morikis, CEO of Sherwin-Williams Co., October 26 earnings conference
“The risks are now clearly linked to longer and more persistent bottlenecks and therefore higher inflation,” Fed Chairman Jerome Powell said last week. “We are now seeing higher inflation and bottlenecks that persist until next year. “
Inflation-adjusted business investment has slowed from the rapid growth rate seen over the past year as manufacturers struggled to fill orders. Non-residential fixed investment increased by 1.8% on an annualized basis. Spending on structures and equipment declined on an inflation-adjusted basis, while the value of intellectual property soared.
The slowdown in consumer spending reflected lower spending on motor vehicles which subtracted 2.39 percentage points from GDP in the quarter. Automakers are struggling to increase production and inventory due to computer chip shortages.
A larger trade deficit – reflecting record imports of foreign goods – further eroded growth. Net exports subtracted 1.14 percentage points. Residential investment has also declined.
Inventories added more than 2 percentage points to GDP after consecutive quarters of decline.
A separate report on Thursday showed initial jobless claims fell to 281,000 last week, a new pandemic low. Continuing claims, a measure of ongoing benefits, fell 237,000 in the week ended October 16, the largest drop since July.
- Excluding the trade and stocks components of GDP, final sales to domestic private buyers, an indicator of underlying demand, grew at a rate of 1.1%, the slowest of the pandemic recovery
- Motor vehicle production plunged 41.6% on an annualized basis; excluding auto production, GDP grew by 3.5 percent
- Spending on services added 3.4 percentage points to third-quarter GDP, while goods subtracted 2.32 percentage points