US GDP grew by 6.5% in Q2, falls short of expectations

Summary

  • The latest figure fell short of economists’ expectations. However, it was a slight improvement from the 6.3% growth rate in the first quarter of 2021.
  • The second-quarter growth rate was higher than the pre-pandemic level, significant progress since the recovery gained pace last May.
  • The recovery was helped by trillions of dollars of fiscal stimulus and strong consumer spending that jumped over 11% at an annualized rate and helped businesses reopen.

The US economy grew at an annualized rate of 6.5% in the second quarter amid the lurking threat of the Covid-19 delta mutant, the Commerce Department said on Thursday.

The latest figure fell short of economists’ expectations, but the overall picture has been of improvement. It was a slight increase from the 6.3% growth rate in the first quarter. Economists had predicted around 8.5% growth rate in the last quarter.

However, the second-quarter growth rate was higher than the pre-pandemic level, modest progress since the recovery gained pace late last year. It is now 0.8% higher than the fourth-quarter figure of 2019.

The recovery was helped by trillions of dollars of fiscal stimulus and strong consumer spending that jumped over 11% at an annualized rate and helped businesses to reopen.

However, the dark cloud of the pandemic continued to play the spoilsport. The Centers for Disease Control and Prevention (CDC), the country’s premier health agency coordinating the covid relief, had last week advised people to remain indoors in the highly contagious areas. The new variant has been a cause of concern for the government.

Economists fear the new threat could derail the recovery if it spreads quickly because the government may reimpose restrictions on businesses. Market segments like restaurants and hotels that saw growth after the reopening of the economy may fall back into recession.

Also Read: US economy adds 850,000 jobs in June as wages rise

Source: Pixabay.

Still, the recent progress in the economy gives hope to policymakers. The Labor Department said consumer prices rose by 5.4% in June YoY, the fastest growth since 2008, indicating there’s enough cash and demand in the market, essential in the recovery stage.

According to average estimates by economists, the current inflation is likely to ease to 4.1% at the end of 2021 and 2.5% by the end of 2022. Economists now forecast a 7% GDP growth in the third quarter before falling back to 3.3% in the second quarter of next year.

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