WASHINGTON (Reuters) – The U.S. economy grew a little faster than initially thought in the second quarter, raising the level of gross domestic product above its pre-pandemic peak, as massive fiscal stimulus and l impact of Covid-19 vaccinations boosted spending.
Thursday’s Commerce Department report also showed a sharp increase in corporate profits, which should allow companies to continue buying equipment and hiring workers, and keep the economy on a solid growth path. in the third quarter, even as the surge in coronavirus cases is cooling consumer spending.
Gross domestic product grew at an annualized rate of 6.6%, the government said in its second estimate of GDP growth for the April-June period. This has been revised up from the 6.5% expansion pace reported in July.
Economists polled by Reuters expected second-quarter GDP growth to rise to 6.7%.
The economy grew at a rate of 6.3% in the first quarter and recovered from the heavy losses suffered during the two months of the Covid-19 recession. The level of GDP is now 0.8% above its peak in Q4 2019.
Upward revisions to GDP growth in the last quarter reflected a slightly more robust pace of consumer spending than initially expected. The government paid one-time stimulus checks to some middle- and low-income households during the quarter.
The Federal Reserve has maintained its ultra-accommodative monetary policy, keeping interest rates at historically low levels and increasing stock prices.
Consumer spending, which accounts for more than two-thirds of the U.S. economy, has also benefited from vaccinations, which have fueled demand for services such as air travel, hotel accommodations, restaurants and entertainment. .
The growth in consumer spending has been brought to a rate of 11.9% from the previously announced rate of 11.8%. But momentum appears to have slowed at the start of the third trimester amid a resurgence in Covid-19 infections driven by the Delta variant of the coronavirus.
Persistent bottlenecks in the supply chain are also causing shortages of goods like motor vehicles and some household appliances, hurting retail sales. Credit card data suggests spending on services such as airline tickets, cruises, and hotels and motels has slowed.
“This is a slowdown because of Delta’s interaction and the constraints on the supply side,” said Michelle Meyer, chief US economist at Bank of America Securities in New York. “We still believe the fundamentals of the economy are strong and all signs point to strong underlying demand.”
US stocks opened broadly lower. The dollar appreciated against a basket of currencies. The prices of the US Treasury were mostly lower.
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The moderation in consumer spending should be offset by strong business investment in equipment, which posted a fourth consecutive quarter of double-digit growth.
Domestic after-tax profits without inventory valuation and capital consumption adjustments, conceptually the most similar to S&P 500 profits, grew at a rate of $ 303.6 billion, or 12.8%, in the second quarter, against 9.4% in January-March. period. Profits increased 69.3% from a year ago.
When measured on the income side, the US economy grew at a rate of 1.6% in the second quarter after growing at a pace of 6.3% in the first quarter. The moderate increase in gross domestic income reflects an increase in subsidies, which are a subtraction in the calculation of GDI.
The average of GDP and GDI, also called gross domestic production and considered a better measure of economic activity, grew at a pace of 4.0% after increasing 6.3% in the first three months of the year.
Bank of America Securities reduced its estimate of GDP growth for the third quarter to a pace of 4.5% from 7.0%. Goldman Sachs economists lowered their growth estimate for this quarter last week to 5.5% from 9%.
Growth is expected to accelerate in the fourth quarter, in part due to the rebuilding of business inventories, which were reduced in the first half to meet strong demand. Globally, economists are forecasting growth of around 7% this year, which would be the strongest performance since 1984.
Although the impetus from fiscal stimulus is fading, consumer spending remains supported by a strengthening labor market.
A separate report from the Labor Department showed on Thursday that initial claims for state unemployment benefits rose from 4,000 to 353,000 seasonally adjusted for the week ended Aug. 21.
Economists had forecast 350,000 candidates for the last week. Adjusting the data to seasonal fluctuations is tricky at this time of year, a task that has been complicated by the pandemic. This could explain the increase in requests last week. Unadjusted claims fell from 11,699 to 297,765 last week.
Businesses cling to their workers in the midst of a labor shortage. The lack of child care facilities and fears of contracting the virus have been blamed on labor shortages, which in part contributes to employment remaining 5.7 million jobs below its peak in February 2020. There was a record 10.1 million job postings at the end of June.
At least 25 states led by Republican governors have pulled out of federally funded unemployment programs, including a weekly payment of $ 300, which the companies say encouraged unemployed Americans to stay at home.
There is, however, no evidence that the early termination of federal benefits has resulted in an increase in hiring in these states. Government-funded benefits will expire on September 6.
“The persistence of the pandemic, exacerbated by the proliferation of the Delta variant, could delay the expected recovery,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pa. “In contrast, faster than expected booster injections for the general population… would allow parents to return to work sooner. “