Consumption in USA

USA - Consumption

GDP growth continues to gather traction in Q2, but undershoots economists’ expectations

GDP growth accelerated to 6.5% in seasonally-adjusted annualized rate (SAAR) terms in the second quarter, from 6.3% in the first quarter, although this figure considerably undershot market expectations.

Private consumption roared ahead with 11.8% growth in the second quarter, which was above the first quarter's 11.4% expansion, driven by the return of Americans to restaurants and other in-person activities. However, public spending went into reverse, contracting 1.5% in Q2 (Q1: +4.2% SAAR). Meanwhile, fixed investment growth slowed, with only a 3.0% rise in Q2, marking the worst result since Q2 2020 (Q1: +13.0% SAAR). This was likely due in part to supply bottlenecks, particularly in the construction sector, with a sharp fall in inventories of goods being testament to such difficulties.

Exports of goods and services bounced back, growing 6.0% in Q2 (Q1: -2.9% SAAR). Conversely, growth in imports of goods and services slowed to 7.8% in the quarter (Q1: +9.3% SAAR).

On an annual basis, economic growth sped up to 12.2% in Q2, following the previous period's 0.5% increase.

Turning to Q3, growth is likely to stay robust. Household spending should continue to grow strongly; the savings rate remains elevated and thus there is still room for consumers to drive growth. Moreover, supply bottlenecks should ease as the economy gradually reallocates its resources according to consumer demand. However, the vaccination program in the U.S. continues to hit roadblocks, while the accelerating spread of the Delta variant poses further threats to the recovery.

Commenting on the economy was CIBC’s Katherine Judge:

“The overhang of savings suggests that growth over the balance of the year should be strong, assuming that the labor shortage fades ahead as government benefits dry up. However, this downside miss suggests a bit weaker annual growth in 2021 than previously expected, with reopening bottlenecks and labor shortages pushing more activity into 2022. Still, we see the U.S. economy on track towards full employment by this time next year.”

ING’s James Knightley struck a more positive note:

“Supply chain bottlenecks and labor market shortages have meant that the economy’s supply capacity has not been able to keep pace with demand. This explains the sharp rundown in inventories with the backlog of orders continuing to rise throughout the economy and supplier delivery times lengthening. In consequence, today’s output figure is much lower than it could have been, but we remain confident that the economy can catch-up again as the supply chain issues are rectified and capacity is rebuilt to cope with demand.”

FocusEconomics Consensus Forecast panelists expect GDP to grow 6.6% in 2021, which is unchanged from last month’s estimate. For 2022, the panel expects the economy to expand 4.1%.