US economy surpasses pre-pandemic size

F uelled by vaccinations and government aid, the United States economy grew at a solid 6.5 per cent annual rate last quarter in another sign that the nation has achieved a sustained recovery from the pandemic recession. The total size of the economy has now surpassed its pre-pandemic level.

Thursday’s report from the Commerce Department estimated that the nation’s gross domestic product – its total output of goods and services – accelerated in the April-June quarter from an already robust 6.3 per cent annual growth rate in the first quarter of the year.

The latest figure fell well below the eight per cent-plus annual growth rate that many economists had predicted for the second quarter. But the miss was due mainly to clogged supply chains related to the rapid reopening of the economy. Those bottlenecks exerted a larger-than-expected drag on companies’ efforts to restock their shelves. The resulting slowdown in inventory rebuilding, in fact, subtracted 1.1 percentage points from last quarter’s annual growth.

By contrast, consumer spending – the main fuel of the US economy – surged for a second straight quarter, advancing at an 11.8 per cent annual rate. Spending on goods grew at an 11.6 per cent rate, and spending on services, from restaurant meals to airline tickets, expanded at a 12 per cent pace as vaccinations encouraged more Americans to shop, travel and eat out.

Companies, too, spent with confidence last quarter. Business investment surged at an 8 per cent annual rate in the April-June quarter, adding 1.1 percentage point to GDP.

With consumers and businesses expected to keep spending, many analysts expect the economy to grow at a robust pace of around 6.5 per cent for all of 2021, despite the supply shortages and the possibility of a resurgent coronavirus in the form of the highly contagious delta variant. That would amount to the strongest calendar-year growth since 1984.

Growth that strong would far exceed the two per cent to three per cent average annual rates of recent decades. And it would represent a striking bounce-back from the economy’s 3.4 per cent contraction last year in the midst of the pandemic, the worst decline since the 1940s.

Underpinning the rapid recovery have been trillions in federal rescue money, ranging from stimulus checks to expanded unemployment benefits to small business aid to just-distributed child tax credit payments. And millions of affluent households have benefited from a vast increase in their wealth resulting from surging home equity and stock market gains.

“Consumers are going to continue to drive the economic train,” said Mark Zandi, chief economist at Moody’s Analytics. “There is a lot of excess savings, a lot of cash in people’s chequeing accounts.”

Jen Psaki, the White House press secretary, hailed the GDP report and called on Congress to go further by passing the administration’s proposals to vastly expand the nation’s infrastructure.

Overhanging the bright economic forecasts is the threat posed by the delta variant. The US is now averaging more than 60,000 confirmed new cases a day, up from only about 12,000 a month ago. Should a surge in viral infections cause many consumers to hunker down again and pull back on spending, it would weaken the recovery.

For now, the economy is showing sustained strength. Last month, America’s employers added 850,000 jobs, well above the average of the previous three months. And average hourly pay rose a solid 3.6 per cent compared with a year earlier, faster than the pre-pandemic annual pace.

AP