Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fiscal stimulus, vaccinations lift U.S. economy above pre-pandemic level

EconomyJul 29, 2021 01:26PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Guests enjoy outdoor dining in the Manhattan borough of New York City, U.S., May 23, 2021. REUTERS/Caitlin Ochs

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy grew solidly in the second quarter, pulling the level of gross domestic product above its pre-pandemic peak, as massive government aid and vaccinations against COVID-19 fueled spending on goods and services.

The pace of GDP growth reported by the Commerce Department on Thursday was, however, slower than economists had expected. That was because businesses ran down inventories further to meet the robust demand. Supply constraints, which have caused shortages of goods such as motor vehicles and household appliances, are making it harder for business to replenish stocks.

"The U.S. economy is off and running," said Scott Hoyt, a senior economist at Moody's (NYSE:MCO) Analytics in West Chester, Pennsylvania. "Real GDP has fully recovered what it lost in the downturn. The economy is well ahead of much of the rest of the world, save China and some parts of southeast Asia, in its recovery from the pandemic recession"

Gross domestic product increased at a 6.5% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 6.3% rate in the first quarter, revised down from the previously reported 6.4% pace.

The level of GDP is now 0.8% higher than it was at its peak in the fourth quarter of 2019, marking the shortest recession and fastest recovery in the nation's history. After the 2007-09 downturn, it took the economy 3-1/2 years to return to its pre-recession peak.

"The economy has achieved escape velocity from which there is no going back," said Chris Rupkey, chief economist at FWDBONDS in New York.

Economists polled by Reuters had forecast GDP rising at an 8.5% rate last quarter. Inventories contracted at a rate of $165.9 billion, slicing 1.13 percentage points from GDP growth.

Trade, housing and government spending were also drags on GDP growth last quarter. Excluding inventories, trade and government spending, the economy grew at a 9.9% pace. This measure of domestic demand rose at an 11.8% pace in the first quarter.

Annual revisions to GDP data showed the economy shrinking 3.4% in 2020, instead of 3.5% as previously estimated. That was still the biggest drop in GDP since 1946. The revisions to growth in other years and quarters were minor.

The National Bureau of Economic Research, the arbiter of U.S. recessions, declared last week that the pandemic downturn, which started in February 2020, ended in April 2020.

Even with the second quarter marking the peak in growth this cycle, the economic expansion is expected to remain solid for the rest of the year. Economists expect growth of around 7% this year, which would be the strongest performance since 1984.

The International Monetary Fund on Tuesday boosted its growth forecasts for the United States to 7.0% in 2021 and 4.9% in 2022, up 0.6 and 1.4 percentage points respectively, from the forecasts in April.

A resurgence in COVID-19 infections, driven by the Delta variant of the coronavirus, however, poses a risk to the outlook. Higher inflation, if sustained, as well as ongoing supply chain disruptions could also slow the economy.

Inflation soared in the second quarter, with the Federal Reserve's preferred measure - the personal consumption expenditures price index, excluding the volatile food and energy components - surging at a 6.1 % rate after increasing at a 2.7% pace in the January-March quarter.

The Fed on Wednesday kept its overnight benchmark interest rate near zero and left its bond-buying program unchanged. Fed Chair Jerome Powell told reporters that the pandemic's economic effects continued to diminish, but risks to the outlook remain.

Stocks on Wall Street rose, with the S&P 500 and the Dow indexes scaling record highs on the GDP data and a slate of strong corporate earnings reports. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

Graphic: U.S. economy back at a record level: https://graphics.reuters.com/USA-ECONOMY/akpezgnzkvr/chart_eikon.jpg

ROBUST CONSUMER SPENDING

President Joe Biden's administration provided $1.9 trillion in pandemic relief in March, including sending one-time $1,400 checks to qualified households, bringing the amount of government aid to nearly $6 trillion since the pandemic started in the United States in March 2020.

Nearly half of the population has been vaccinated against COVID-19, allowing Americans to engage in services-related activities that were curbed early in the pandemic.

Consumer spending, which accounts for more than two-thirds of the U.S. economy, grew at an 11.8% rate in the second quarter after rising at an 11.4% pace in the prior period.

Americans frequented restaurants, stayed at hotels and visited casinos. They also bought motor vehicles and clothing.

Though the fiscal boost is fading and COVID-19 cases are rising in states with lower vaccination rates, consumer spending will likely continue to grow. Households accumulated at least $2 trillion in excess savings during the pandemic. Record-high stock market prices and accelerating home prices are boosting household wealth. Wages are also rising as companies compete for scarce workers amid a strengthening labor market.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell by 24,000 to a seasonally adjusted 400,000 for the week ended July 24. Claims hit a two-month high in the prior week, but that was likely due to difficulties stripping out seasonal fluctuations from the data.

Businesses maintained a robust pace of investment, buying light trucks, aircraft and machinery. They invested in research and development as well as software, but cut back on spending on commercial and health care structures.

Government spending was weighed down by weakness in nondefense services as the processing and administration of Paycheck Protection Program loan applications by banks on behalf of the federal government declined.

"Supply chains allowing, the need to rebuild off of the currently very low level of inventories should set up for inventory investment to boost GDP in coming quarters, but the availability of certain goods will be the key constraint determining the timing of that recovery," said Ellen Zentner, chief U.S. economist at Morgan Stanley (NYSE:MS) in New York.

Fiscal stimulus, vaccinations lift U.S. economy above pre-pandemic level
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (27)
Klaus Weyers
Klaus Weyers Jul 30, 2021 1:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
well.. my equity shorts are working real sweet today
William Smith
William Smith Jul 29, 2021 9:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
All because of printed monetary infusions of soon to be worthless dollars.
Green Mango
Green Mango Jul 29, 2021 8:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Seems like this was written by an intern being told what to say. Oblivious to current revelations out about the " vaccine".
Trevor Roberts
LimitUp Jul 29, 2021 1:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If Trump were in office they would tell you we are all doomed with same conditions
Green Mango
Green Mango Jul 29, 2021 1:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yet he is still able to agitate you while not in office. Seek help
Francesco Lucchesi
Francesco Lucchesi Jul 29, 2021 12:43PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it's a joke. then they are surprised why people believe in conspiracies lol
Roger Miller
Roger Miller Jul 29, 2021 11:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Huge stimulus was necessary, and it didn’t even achieve what the economists were forecasting, not to mention higher inflation and over 6 million jobs still gone. Kiss more of the American middle class good bye.
Ferdinando Riboni
Ferdinando Riboni Jul 29, 2021 11:40AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
and here in LA a hundred thousand homeless
Eudon Hickey
Eudon Hickey Jul 29, 2021 11:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wink wink. Last week nobody wanted jobs, this week eveything is fine…
Fakhraddin Aliyev
Fakhraddin Aliyev Jul 29, 2021 11:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The worst the data the bigger foolish became these media printing such an awfull
Francesco Lucchesi
Francesco Lucchesi Jul 29, 2021 10:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the worst the data the bigger the stimulus lol.
perplexed76 .
perplexed76 . Jul 29, 2021 10:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i suspect stock gamblers are excited because of stimulus? or i'm lost
Mark Jannetty
Mark Jannetty Jul 29, 2021 10:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
GDP slowing, trade deficit increased, home sales slowing, inflation growing, new unemployment claims up. yep everything looks rosey
James Wills
James Wills Jul 29, 2021 10:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Brrrr
Tre Hsi
Tre Hsi Jul 29, 2021 10:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"Gross domestic product increased at a 6.5% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 6.3% rate in the first quarter...."   - GDP is not slowing, it's just not growing as fast as predicted
Tre Hsi
Tre Hsi Jul 29, 2021 10:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell by 24,000 to a seasonally adjusted 400,000 for the week ended July 24. Economists polled by Reuters had forecast 380,000 applications for the latest week."  -- not sure where do you read that new unemployment claims were up?
ZS Beck
ZS Beck Jul 29, 2021 10:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It’s called Stagnation, everything has becomes way too expensive for regular people. The steam is running out.
Jalal Ud Din
Jalal Ud Din Jul 29, 2021 9:46AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
suger coated information revealed where numbers are not summing up but stock market should remain high only for Technology sector
Francesco Lucchesi
Francesco Lucchesi Jul 29, 2021 9:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
you couldn't make it up. resembles the vaccine efficacy. that one is dropping too
Francesco Lucchesi
Francesco Lucchesi Jul 29, 2021 9:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hahaha solidly. how much are they paying you to lie
Jose Soberanes
Jose Soberanes Jul 29, 2021 9:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
LOL! those are horrible disappointing numbers...
Ricardo Diogo
Rcd72 Jul 29, 2021 9:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"United States Gross Domestic Product (GDP) Price Index QoQ" https://www.investing.com/economic-calendar/gdp-price-index-343
Ricardo Diogo
Rcd72 Jul 29, 2021 9:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
discount inflation and GDP growth was 0.3....
Francesco Lucchesi
Francesco Lucchesi Jul 29, 2021 9:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ronald Warren
Ronald Warren Jul 29, 2021 9:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The economy did not grow. It's holding steady. Same number as first quarter! Less, once adjusted.
Ricardo Diogo
Rcd72 Jul 29, 2021 9:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
propaganda....the inflation is higher than GDP...real growth is 0!bubble market
Fakhraddin Aliyev
Fakhraddin Aliyev Jul 29, 2021 9:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Economic grow was slowly than expected
sami narrainoff
sami narrainoff Jul 29, 2021 9:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It’s inflation adjusted ?
Jon Bal
Jon Bal Jul 29, 2021 9:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the "6 trillion in government aid" sentence sorta annuls the solid growth premise
Johnnie Walker
Johnnie Walker Jul 29, 2021 8:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What numbers you looking at? Clearly not the same ones as we are.
Toimi Talonen
Toimi Talonen Jul 29, 2021 8:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Why you lie reporter?
SS ABCD
SS ABCD Jul 29, 2021 8:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
To prop up their illegit potato!
Artem Key
Artem Key Jul 29, 2021 8:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lucia Mutikani, the author of this post has to be fired!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email