What’s next for the US economy? Business News

TThe US economy returned to its pre-pandemic level on Thursday, a year after suffering its worst quarterly contraction on record.

But the increase was lower than some economists had predicted, suggesting that weaning the economy from budget support while building Covid-19 infections by the Delta variant carries risks.

New data from the S Commerce Department showed gross domestic product (GDP) increased 1.6% in the second quarter of the year, slightly higher than in the first three months of 2021. On an annualized basis , the world’s largest economy grew 6.5 percent in the three months of June. Many economists expected higher growth of around 8.5%.

A drop in inventories, goods and parts stored by retailers and manufacturers, was one of the main reasons why GDP growth was weaker than expected. He highlighted the heavy pressure on supply chains after the pandemic disrupted shipping and the rest of the logistics industry. There have also been surges in demand as consumers resume spending after the restrictions were lifted.

Yet this is a brutal turnaround. Last week, the National Bureau of Economic Research, which determines whether or not the U.S. economy has suffered a recession, said the downturn, which began from February 2020 to April of the same year, was the shortest recession never recorded.

The new GDP figures also come after the US Federal Reserve signaled on Wednesday that it was considering easing its support, known as quantitative easing, by reducing the number of bonds it buys in the months to to come. The Fed was particularly cautious in its communications on easing debt purchases after the so-called “taper tantrum” of 2013 when it said it would ease its monetary support, triggering a massive market sell-off by investors. .

Even with economic output below expectations, economists said The independent they are optimistic about the outlook in the United States.

“I’m not troubled by the big numbers,” says Ian Shepherdson, founder and chief US economist at Pantheon Macroeconomics. “The bottom line is that consumption is increasing. Business investment is advancing. Everything else is meh, but those are the two main things.

Economists and investors keep a close watch on consumer spending and business investment because, collectively, they account for about 80 percent of economic activity. Consumer spending capacity also benefited from a significant boost in March and April, via stimulus checks.

“There is every reason to be quite optimistic about the second half of this year,” said Mr. Shepherdson. “Consumption was in double digits in the second quarter, 11.8%. It is not sustainable but it is good. People have accumulated a huge amount of savings.

Financial markets have also been relatively calm so far about the prospect of an imminent reduction in debt purchases by the Fed.

It was just “another very slow, very careful little step towards the exit door,” said James Athey, chief investment officer at Aberdeen Standard Investments. Still, the approach showed the central bank to be nervous about any shock in the markets: “It was a warning, before a warning, before a shrinkage,” he said.

Yet while investors have remained relatively optimistic about the prospect of a decline, economists are concerned about the impact of the Delta variant on the US recovery.

There are significant proportions of the population in some southern states, which are now experiencing rapid increases in infections. The country averages about 60,000 new confirmed cases per day, a sharp increase from around 12,000 per day last month.

“The cases there will increase. It’s very difficult to know how far that will go, ”says Shepherdson. In some states, less than 40% of the population is vaccinated, he added.

However, it is difficult to say if there would be the political will to reintroduce restrictions to try to stem a tide of cases. Many economists do not expect harsh reactions. More likely, provided hospitalization rates don’t threaten to overwhelm health services, consumers will be a bit more cautious, with a moderate economic impact.

“I don’t think this will elicit the same level of response from state governors in previous waves,” Athey said.

And if economic production has pushed back Covid-19, the same cannot be said for the labor market. Unemployment is still well below levels seen before the pandemic took hold in the United States and around the world. There are about seven million fewer jobs than before the economy contracted, according to the U.S. Bureau of Labor Statistics.

Reaching pre-pandemic GDP levels still means there is a loss of growth: the expansion that would have taken place without the lockdowns and deaths. And the picture could darken a bit in the weeks to come, however, even if the economy is back on track after the pandemic caused it to contract.

“We need to reclaim the lost ground,” says Shepherdson. “This…