The U.S. Bureau of Economic Analysis (BEA) released its advanced estimate of the Gross Domestic Product (GDP), showing massive growth of 6.5% for the second quarter of 2021. A report from Reuters speculated that it could be the most rapid pace of expansion the country’s economy has seen in 38 years.
The growth came primarily from increases in personal consumption expenditures (PCE), both nonresidential and residential fixed investment, exports and government spending, the BEA reports. Food services and accommodations drove PCE expenditures, along with “other nondurable goods,” which included pharmaceutical products, the BEA says.
The Washington Post reports that the favorable figures reflect “full economic recovery,” even when adjusted for inflation. Economic output has exceeded the pre-pandemic high, but a full year of growth is lacking, so the economy is not where it may have been had the pandemic not occurred, WaPo reports.
As supply chains straighten out, economic experts say the second quarter could create “quite the tail wind to growth going forward,” Joe Brusuelas, chief economist at RSM, told WaPo. “It’s lumber. It’s dry wall. It’s chips. As the supply chain constraints ease, those bottlenecks clear, and you’ll get a surge in industrial production and residential investment,” he said.
However, optimism is also tempered by concern about the spread of the delta variant of the coronavirus, which could spark a second wave. Fed Chair Jerome Powell, however, said Americans have shown the ability to adjust to life in the pandemic, which could offer a cushion from harsh economic strain..
Some sources are saying the GDP predictions fell short and that economic growth may not meet the optimistic advance analysis figures. Eric Vanraes, a bond portfolio manager at Eric Sturdza Investments in Geneva, Switzerland, called today’s GDP figures, “less-than-sharp” in a MarketWatch article.
The 6.5% predicted annual growth rate fell below the 9.1% predicted by economists, and bond yields have hit their lowest rate since February 2003, the Wall Street Journal reported.
Vanraes told MarketWatch that the U.S. Federal Reserve may have missed the “sweet spot” to taper bond purchases. “We do not exclude a slowdown in one year or 18 months from now and if there is one, it will be very difficult for the Fed to become more hawkish when it needs to,” he said.
Additionally, not every area in the second quarter report showed growth. Americans current-dollar personal income was down by 22% in the second quarter compared to first-quarter growth of 56.8% in the first quarter of 2021. The decrease reflected the cuts in government social and unemployment benefits that were part of pandemic stimulus packages and relief programs, the BEA report said. Disposable personal income also dropped by 26.1%, or $1.42 trillion in the second quarter.
However, spending on personal outlays continued increasing, up by $680.8 billion according to second quarter BEA predictions.
With personal income down and the Fed hinting at interest rate hikes, Americans can brace for economic changes or a second wave of the pandemic by paying down high-interest debt, seeking opportunities to increase their income in a tight labor market, and stocking up on certain necessities for the months ahead.
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Last updated: July 29, 2021