Q3 GDP growth won’t be pretty, but it should improve

Containers are stacked on the deck of the Seamax New Haven cargo ship as they run at the Port of New York in New York City, United States on October 13, 2021.

Brendan McDermid | Reuters

The economic recovery in the United States has slowed sharply in the past three months, as products remain stuck in normally crowded ports, employers struggle to find workers and consumers struggle as prices rise.

When the Commerce Department on Thursday releases its first estimate of annual GDP growth for the third quarter, it will likely show only a 2.8% increase, according to a Dow Jones estimate.

While this kind of number would have looked totally fine in pre-Covid times, it will actually be the slowest pace since recovery began in April 2020 off The shortest but most severe recession in the history of the United States.

Moreover, there is a possibility that the economy will not grow at all in the quarter – Federal Reserve Bank of Atlanta GDP now The tracker lowered its estimate to 0.2%, the latest reduction being the result of lower expectations for government spending and real net exports.

However, economists are not concerned. To a large extent, they say, the slowdown is the result of factors, mainly related to supply chain bottlenecks, which will ease in the coming months and allow the recovery to continue.

“The weakness is more due to supply distortions than anything else,” said Joseph LaVorgna, chief economist at Natixis for the Americas. “The economy is basically still going strong, and I’m not going to look at this quarter as a reflection of where we’re going.”

In fact, Natixis has a slightly more optimistic view of the GDP number, which is the sum of goods and services produced by the economy. The company expects growth to come in at a pace of 3.3%. However, this would be a sharp decline from the 6.7% increase in the second quarter. This would also be the lowest number since the staggering 31.2% drop in the pandemic-ridden second quarter of 2020.

“To the extent that we are not fully reopening, at least in terms of travel and leisure activities, things are a lot healthier than they seem,” LaVorgna said. “I don’t see this as a sign of things to come.”

CNBC Quick update The survey of forecasters puts average growth expectations at 2.3% for the third quarter.

The economy still faces multiple challenges.

Dozens of ships Stuck in crowded California coast ports, pending delivery of about $24 billion in goods, according to a recent estimate by Goldman Sachs. Bottlenecks are the result of huge demand for goods for services at a time when companies are having difficulty filling vacancies. a Record 4.3 million workers left their jobs in August, leaving the economy with 10.4 million jobs, according to the Labor Department.

There is little hope that supply chain problems will work themselves out any time soon. newly Federal Reserve Survey in Dallas 41.3% of respondents showed it would take at least 10 months for supply chains to return to normal, and 64.5% of Texas businesses said they had experienced supply disruptions or delays, up from 35.5% in February.

Other economic issues

These problems, in turn, lead to a rush of inflation Close to its highest point in 30 years As merchandise becomes scarcer and material costs continue to rise.

LaVorgna said he was concerned about the potential for energy cost inflation to stymie growth going forward.

“Production is still about 15 to 20 percent lower than it was before the epidemic,” he said. “The recipe for rising energy costs is very present. This is what will hurt the economy more than supply chain problems.”

Meanwhile, growth forecasts have been recalibrated.

Goldman Sachs cut its GDP forecast several times, lowering it on Wednesday for the third quarter to 2.75%. The company lowered its full-year forecasts for 2021 and 2022 to 5.6% and 4%, respectively, from already low estimates of 5.7% and 4.4%.

Fed policymakers are competing with the simultaneous forces of slower growth, higher inflation, and a rally Comparisons with stagflation In the late seventies and early eighties. Traders have raised their bets until the Fed will start raising rates again, with the Fed Funds futures market now forecasting an initial rally in June 2022 and at least again before the end of the year.

However, most economists dismiss the possibility of stagflation, and instead expect a more natural set of conditions to prevail.

That could mean a significant acceleration in GDP in the fourth quarter followed by 2022 that will begin to resemble the US economy in the pre-pandemic period. For example, Jefferies economists see the third quarter coming in with a growth rate of 3.8% before giving way to 8% through the end of 2021.

Citigroup is looking for just 2.4% growth in the third quarter, but economist Veronica Clark noted that “the slower pace can broadly be summarized as a result of supply-side constraints rather than a reflection of weak demand.”

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