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September 30, 2021 Blog 2 min read
Updated GDP data barely moved the needle for the second quarter, as economic growth expanded at a robust pace but is expected to decelerate as the rebound fades.

GDP Q0Q (Annualized % Change) - HistoryToday’s estimate effectively left the big picture on second quarter economic growth unchanged, as top-line growth was revised fractionally higher to 6.7% from a previously reported 6.6%. Unsurprisingly, the data continues to point to an economy that has grown at a rapid clip and continues to recover from the effects of the COVID-19 pandemic and resulting recession last year.

Consumers unambiguously carried the economy during the quarter, more than accounting for all of the growth, offsetting the drag created by the trade deficit, falling inventories, and a reduction in government spending. But the consumer story doesn’t end there.

The report clearly illustrated the effectiveness of mass vaccinations earlier this year and various eased restrictions. As businesses reopened more fully and travel increased due to ebbing COVID-19 risk, consumer spending on services surged by over 11%. Restaurants, hotels, and transportation services all benefited from Americans leaving their homes and traveling to a much greater degree. As a result, spending on services accounted for about 75% of the total growth in the economy in the second quarter.

Consumer spending on goods was also brisk, but the rate of growth slowed considerably from the preceding quarter, reflecting changing consumer behaviors.

Looking beyond the first half of the year, the outlook for economic growth remains solid; however, several factors probably contributed to a deceleration in recent months. The spread of the more contagious Delta variant of the COVID-19 virus appears to have peaked in mid-September but was a headwind for spending in recent months, particularly in those regions in which it gained a more notable foothold. The additional boost to consumer spending fueled by multiple rounds of direct payments by the federal government has also shown signs of fading, although many households still have a large stockpile of cash.

Supply constraints for a range of consumer goods remain a problem, as production has struggled to keep up with the surge in demand and shortages of certain components and finished goods has contributed to rising prices. A widespread shortage of skilled labor is also vexing for many employers that are unable to hire enough to keep pace with demand.

Broadly, the pace of the expansion is likely to continue to slow in the coming months, but there should be more than enough momentum to sustain growth above the long-term trend. Tight labor market conditions are lifting wages, and record job openings should enable solid job creation to continue. Household income should benefit and provide further fuel for consumer spending, although some of that benefit could be eroded by inflationary forces that will take some time to dissipate.

Given the challenges created by labor shortages, a resurgence in business investment could act as an additional source of growth for the economy, as employers look for other ways to expand production, leaning more heavily on investments in technology and updated equipment to foster productivity gains.

The bottom line? Today’s report reaffirmed that the economy continued to expand at a rapid pace in the second quarter. Although growth likely slowed in the current quarter as supply chain bottlenecks, the COVID-19 Delta variant, and rising prices created challenges, the near-term outlook for the economy remains solid.

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Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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